Question 1 Consider an economy with two goods t = 1,2. Whenever an individual consumes ₁ units of good 1 and ₂ units of good 2, their utility is given by u(x₁, x2) = aln x₁ + ln x2, where a > 0 is a free parameter. (i) How does the parameter a affect the marginal rate of substitution between goods 1 and 2? Explain intuitively how does the relative preference for goods 1 and 2 change as the parameter a increases.

Question 1 Consider an economy with two goods t = 1,2. Whenever an individual consumes ₁ units of good 1 and ₂ units of good 2, their utility is given by u(x₁, x2) = aln x₁ + ln x2, where a > 0 is a free parameter. (i) How does the parameter a affect the marginal rate of substitution between goods 1 and 2? Explain intuitively how does the relative preference for goods 1 and 2 change as the parameter a increases.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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please teach solve explain step by step
1i
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