Consider an individual whose preferences are represented by the utility function U(x1,x2) = min {3x1+x2 , x1+3x2}. For this individual,Calculate her optimal consumption bundle when she has an income of 24, and P1=1, P2=2.Calculate her optimal consumption bundle when she has an income of 24, and P1=1, P2=4.Calculate the income and substitution effects resulting from the change in price of Good 2 (on the level of Good 2 consumption!)Calculate her demand function X1* (P1, P2,m)Calculate her own price, cross price, and income elasticities at X1*(1, 2, 24) and at X1*(1, 4, 24). Based on these, can you say the goods 1 and 2 are (gross, or Marshallian) complements or substitutes?

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14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider an individual whose preferences are represented by the utility function U(x₁,x₂) = min {3x₁+x₂ , x₁+3x₂}. For this individual,

Calculate her optimal consumption bundle when she has an income of 24, and P₁=1, P₂=2.
Calculate her optimal consumption bundle when she has an income of 24, and P₁=1, P₂=4.
Calculate the income and substitution effects resulting from the change in price of Good 2 (on the level of Good 2 consumption!)
Calculate her demand function X₁^* (P₁, P₂,m)
Calculate her own price, cross price, and income elasticities at X₁^*(1, 2, 24) and at X₁^*(1, 4, 24). Based on these, can you say the goods 1 and 2 are (gross, or Marshallian) complements or substitutes?