Suppose an individual has the following utility function: U(X,Y)= min{X, 2Y}, andthey choose marshallian demands gx,gy. Suppose you have an increase in px. Whichof the following is true about the change in demand for good X, gx?(a) No substitution effect, because they only consume one of the goods.(b) No substitution effect, because they always consume the goods in fixed proportion.(c) No income effect, because they only consume one of the goods.(d) No income effect, because they always consume the goods in fixed proportion.Which of the following production functions exhibits constant returns to scale?(a) f(k,l) = 0.310.7(b) f(k, l) = kl(c) f(k, 1) = ln(k)+ln(1)(d) f(k, l) In(k) + In(1)=

Answered: Suppose an individual has the following…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose an individual has the following utility function: U(X,Y)= min{X, 2Y}, and
they choose marshallian demands gx,gy. Suppose you have an increase in px. Which
of the following is true about the change in demand for good X, gx?
(a) No substitution effect, because they only consume one of the goods.
(b) No substitution effect, because they always consume the goods in fixed proportion.
(c) No income effect, because they only consume one of the goods.
(d) No income effect, because they always consume the goods in fixed proportion.
Which of the following production functions exhibits constant returns to scale?
(a) f(k,l) = 0.310.7
(b) f(k, l) = kl
(c) f(k, 1) = ln(k)+ln(1)
(d) f(k, l) In(k) + In(1)
=

Expert Solution

Step 1

U(X , Y) = min ( X , 2Y)

here derive the marshallian demand function

The above utility function represent the rawlsian utility function where the utility is maximised when the consumer consumes good in a fixed proportion.
Now when the price of the good x increases then the consumer would not be able to substitute the good y for good x , occuringout of price change and hence the substitution effect is zero.

So the correct answer is OPTION B

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