4. Consider the general multiplicatively separable utility function given by u (x1, x2) = µu1 (x1) u2 (x2),and budget constraint given by p1x1+P2X2 = W.(a) Find the wealth effect for good 1. Show that, for a "well-behaved" utility function of thisг —a2 uform (i.e.,ди> 0, i = 1,2; and < 0, i =1, 2), good 1 must be a normal good.Explain intuitively why this should be so.(b) Find the own price effect for good 1.(c) Show that good 1 being a normal good is a sufficient condition for good 1 not being aGiffen good.

Given Utility function U=μX1X2Budget consraint=P1X1+P2X2=WW= income of the consumerP1= price of good…

4. Consider the general multiplicatively separable utility function given by u (x1,x2) = pu1 (x1) u2 (x2), and budget constraint given by pič1 + P2X2 = w. (a) Find the wealth effect for good 1. Show that, for a "well-behaved" utility function of this form (i.e., > 0, i = 1,2; and * < 0, i = Explain intuitively why this should be so. 1, 2), good 1 must be a normal good. (b) Find the own price effect for good 1. (c) Show that good 1 being a normal good is a sufficient condition for good 1 not being a Giffen good.

4. Consider the general multiplicatively separable utility function given by u (x1,x2) = pu1 (x1) u2 (x2), and budget constraint given by pič1 + P2X2 = w. (a) Find the wealth effect for good 1. Show that, for a "well-behaved" utility function of this form (i.e., > 0, i = 1,2; and * < 0, i = Explain intuitively why this should be so. 1, 2), good 1 must be a normal good. (b) Find the own price effect for good 1. (c) Show that good 1 being a normal good is a sufficient condition for good 1 not being a Giffen good.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

4. Consider the general multiplicatively separable utility function given by u (x1, x2) = µu1 (x1) u2 (x2),
and budget constraint given by p1x1+P2X2 = W.
(a) Find the wealth effect for good 1. Show that, for a "well-behaved" utility function of this
г —
a2 u
form (i.e.,
ди
> 0, i = 1,2; and < 0, i =
1, 2), good 1 must be a normal good.
Explain intuitively why this should be so.
(b) Find the own price effect for good 1.
(c) Show that good 1 being a normal good is a sufficient condition for good 1 not being a
Giffen good.

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