3) A household has the budget constraint y = px₁ + x2 where the price of good 2 is normalized to one. The utility function is given by U(x1, x2) = Min[x₁, 4x2] a) Solve for your demand functions ₁ and 2 and utility U(x₁, x₂) as functions of y and p. b)Suppose initially that y = 100 and p = 1. Consider a increase in the price of good 1 to p=2. Solve for the substitution effect, for the income effect and for the total effect.
3) A household has the budget constraint y = px₁ + x2 where the price of good 2 is normalized to one. The utility function is given by U(x1, x2) = Min[x₁, 4x2] a) Solve for your demand functions ₁ and 2 and utility U(x₁, x₂) as functions of y and p. b)Suppose initially that y = 100 and p = 1. Consider a increase in the price of good 1 to p=2. Solve for the substitution effect, for the income effect and for the total effect.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![3) A household has the budget constraint y = px, + x, where the price of good 2 is
normalized to one. The utility function is given by
U (*1, 12) = Min[x1,4.x2]
a) Solve for your demand functions r1 and r2 and utility U(x1, x2) as functions of y and
р.
b)Suppose initially that y = 100 and p = 1. Consider a increase in the price of good 1 to
p' = 2. Solve for the substitution effect, for the income effect and for the total effect.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdfedcf45-36f9-41dd-be80-a8990833e266%2F69a80f39-47a0-4756-b623-2d7d804c0e99%2F7wejo15_processed.png&w=3840&q=75)
Transcribed Image Text:3) A household has the budget constraint y = px, + x, where the price of good 2 is
normalized to one. The utility function is given by
U (*1, 12) = Min[x1,4.x2]
a) Solve for your demand functions r1 and r2 and utility U(x1, x2) as functions of y and
р.
b)Suppose initially that y = 100 and p = 1. Consider a increase in the price of good 1 to
p' = 2. Solve for the substitution effect, for the income effect and for the total effect.
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