1. Consider the consumer problemwith two goods, applesand oranges. Let x be the amount of apples and y be the amount of oranges, andlet u(x, y) = 2√x + y be the utility function of the consumer. Let på be the priceof apples, py be price of oranges, and I be the income of the consumer.(a) Using the condition that the MRS is equal to the relative prices, that is,Pxди/дхди/ду Py2derive the demand functions of apples and oranges.(b) Even though the demand function of apples does not explicitly contain I, it isassumed that I cannot be too small. Explain why this assumption is necessary.=(c) Let I90 and suppose that py = 6. Consider a price increase of applesfrom 2 to 3 that leaves the price of oranges unchanged at 6. Calculate thesubstitution effect and the income effect from this price change regarding thedemand for apples.

There are two goods : Apples (x) & Oranges (y) Utility function : U = 2(x)0.5 + y Income = I…

Consider the consumer problem with two goods, apples and oranges. Let x be the amount of apples and y be the amount of oranges, and let u(x, y) = 2√x + y be the utility function of the consumer. Let på be the price of apples, py be price of oranges, and I be the income of the consumer. (a) Using the condition that the MRS is equal to the relative prices, that is, Px ди/дх ди/ду Py derive the demand functions of apples and oranges.

Consider the consumer problem with two goods, apples and oranges. Let x be the amount of apples and y be the amount of oranges, and let u(x, y) = 2√x + y be the utility function of the consumer. Let på be the price of apples, py be price of oranges, and I be the income of the consumer. (a) Using the condition that the MRS is equal to the relative prices, that is, Px ди/дх ди/ду Py derive the demand functions of apples and oranges.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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