3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function v(p, y) and Hicksian demand function for good 1 = y (1-a) (p,u)=au Pip₂ a P2 P1 P1 P2 Demonstrate that the Slutsky equation holds for the own-price effect for good 2₁.
3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function v(p, y) and Hicksian demand function for good 1 = y (1-a) (p,u)=au Pip₂ a P2 P1 P1 P2 Demonstrate that the Slutsky equation holds for the own-price effect for good 2₁.
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
Related questions
Question
Only 3.2
![Question 3
3.1 Slutsky's equation relates the Marshallian demand function to the Hicksian demand func-
tion, and therefore provides a way in which to decompose the total effect of a price change
on quantity demanded into the substitution and income effects. Provide an expression for
the general Slutsky equation of a good (x;) with respect to changes in the price of x;, and
clearly label the total effect, substitution effect and income effect.
3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function
v(р, у)
(1-a)
and Hicksian demand function for good 1
* (p, u)
P2 ( Pi
= au
Pi
P2
Demonstrate that the Slutsky equation holds for the own-price effect for good r1-](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F87b53351-2067-4a4d-a81c-a5cf0ffaa5a8%2F4cec9f6a-594a-4076-a421-a68372a626ef%2Fd3zjcb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Question 3
3.1 Slutsky's equation relates the Marshallian demand function to the Hicksian demand func-
tion, and therefore provides a way in which to decompose the total effect of a price change
on quantity demanded into the substitution and income effects. Provide an expression for
the general Slutsky equation of a good (x;) with respect to changes in the price of x;, and
clearly label the total effect, substitution effect and income effect.
3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function
v(р, у)
(1-a)
and Hicksian demand function for good 1
* (p, u)
P2 ( Pi
= au
Pi
P2
Demonstrate that the Slutsky equation holds for the own-price effect for good r1-
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