Consider a consumer whose preference is represented by the utility function u(x₁, x₂) = ln(x₁+1) + x₂ where good 2 represents all other goods. Suppose the consumer's income is m > 1, let p2 = 1. a) Derive x₁(p₁, m), the consumer's demand function for good 1. b) Letting m = 10, graph the consumer's demand curve, with x₁ on the horizontal axis and p₁ on the vertical axis. c) Suppose that at first the price of good 1 is p₁ = 1, but then the price rises to p₁ = 1. What is the loss of consumer surplus associated with this price increase?

Consider a consumer whose preference is represented by the utility function u(x₁, x₂) = ln(x₁+1) + x₂ where good 2 represents all other goods. Suppose the consumer's income is m > 1, let p2 = 1. a) Derive x₁(p₁, m), the consumer's demand function for good 1. b) Letting m = 10, graph the consumer's demand curve, with x₁ on the horizontal axis and p₁ on the vertical axis. c) Suppose that at first the price of good 1 is p₁ = 1, but then the price rises to p₁ = 1. What is the loss of consumer surplus associated with this price increase?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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