= Consider an extended version Dornbusch Fisher Samuelson covered in class: The preferences of domestic and foreign representative consumers can be represented as a Cobb- Douglas functions with product-specific taste shocks s(z): U = ₁¹s(z)ln(c(z)) dz and U* s(z)ln(c(z)) dz, where z=[0;1] is the index of a good, c(z) is the consumption of the corresponding good and s(z) is the exogenous preference shifter (consumers take taste shocks as given). a) Write the first-order conditions and derive the demand function for an arbitrary good z. What is the relationship between the taste shock s(z) and the consumed quantity of the good q(z)? Do you find it intuitive or counter-intuitive? Explain the intuition.

= Consider an extended version Dornbusch Fisher Samuelson covered in class: The preferences of domestic and foreign representative consumers can be represented as a Cobb- Douglas functions with product-specific taste shocks s(z): U = ₁¹s(z)ln(c(z)) dz and U* s(z)ln(c(z)) dz, where z=[0;1] is the index of a good, c(z) is the consumption of the corresponding good and s(z) is the exogenous preference shifter (consumers take taste shocks as given). a) Write the first-order conditions and derive the demand function for an arbitrary good z. What is the relationship between the taste shock s(z) and the consumed quantity of the good q(z)? Do you find it intuitive or counter-intuitive? Explain the intuition.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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