Let a consumer's preferences are reflected by a Cobb-Douglas utility function i.e., UXLX) = Xf x5 BM X2 P2 αM The demand functions derived from this utility function are: P1 Where, M is the income level, Pi and P2 are respective prices. g and B are respective shares of X1 and X2, and at+B=1 Calculate and prove the following: For good Xı, sum of all price and income elasticities is equal to zero. Weighted sum of all income elasticities is equal to one. Weighted sum of all price elasticities with respective to the price of one good is negative.

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Equilibrium Price and Quantity

Equilibrium refers to a state of balance that comes about because there is equality in all forces.