a) If the price of the first good decrease to 4$ (p₁ = 4$) then find the new (final) Marshallian and Hicksian demand functions for the first and second goods b) Find the difference between new and old Marshallian demands for the first good: (x₁ new x₁old). This difference is called as the "Total Effect" (TE) c) Find the difference between new Hicksian demand and old Marshallian demands for the first good. This difference is called as the "Substitution Efect" (SE). d) Find the difference between new Marshallian demand and and new Hicksian demand. This difference is called as the "Income Effect" (IE) e) Show that TE = SE + IE

a) If the price of the first good decrease to 4$ (p₁ = 4$) then find the new (final) Marshallian and Hicksian demand functions for the first and second goods b) Find the difference between new and old Marshallian demands for the first good: (x₁ new x₁old). This difference is called as the "Total Effect" (TE) c) Find the difference between new Hicksian demand and old Marshallian demands for the first good. This difference is called as the "Substitution Efect" (SE). d) Find the difference between new Marshallian demand and and new Hicksian demand. This difference is called as the "Income Effect" (IE) e) Show that TE = SE + IE

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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