A consumer has utility u(x₁, x2) = x₁x² for two goods. The government subsidizes half of the cost of the purchase of good 1 up to a maximum of 2 units. Thus if the consumer chooses the bundle (1, 2), she pays p₁/2 per unit up to x₁ = 2, and p₁ per unit thereafter. In particular, if she consumes more than two units, she receives a total subsidy of p₁. Assume throughout this question that w > p₁. Recall that the Marshallian demand for this utility function (in the absence of any subsidy) is x(p, w) = W 2w 3p13p2,

A consumer has utility u(x₁, x2) = x₁x² for two goods. The government subsidizes half of the cost of the purchase of good 1 up to a maximum of 2 units. Thus if the consumer chooses the bundle (1, 2), she pays p₁/2 per unit up to x₁ = 2, and p₁ per unit thereafter. In particular, if she consumes more than two units, she receives a total subsidy of p₁. Assume throughout this question that w > p₁. Recall that the Marshallian demand for this utility function (in the absence of any subsidy) is x(p, w) = W 2w 3p13p2,

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 5SQ

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