Suppose that Helena's utility over goods x and y is given by U (x, y) = 2/¤ + VG Solve Helena's utility maximization problem to find her ordinary demand functions for x and y. Show carefully each step you take. A. Next, solve Helena's expenditure minimization problem to find compensated demand for x and y. C. Consider a particular set of parameters: Px=5, Py=10, and l=60. Draw the budget constraint and the optimal consumption bundle in an (x,y) graph, being careful to label the axes and any relevant coordinates. Next, suppose that the price of good y decreases, so that Py'=5. (The price of x and income remain the same.) Add the new budget line and optimal basket to the graph. B.
Suppose that Helena's utility over goods x and y is given by U (x, y) = 2/¤ + VG Solve Helena's utility maximization problem to find her ordinary demand functions for x and y. Show carefully each step you take. A. Next, solve Helena's expenditure minimization problem to find compensated demand for x and y. C. Consider a particular set of parameters: Px=5, Py=10, and l=60. Draw the budget constraint and the optimal consumption bundle in an (x,y) graph, being careful to label the axes and any relevant coordinates. Next, suppose that the price of good y decreases, so that Py'=5. (The price of x and income remain the same.) Add the new budget line and optimal basket to the graph. B.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Transcribed Image Text:Suppose that Helena's utility over goods x and y is given by
U (x, y) = 2/a + G
А.
Solve Helena's utility maximization problem to find her ordinary
demand functions for x and y. Show carefully each step you take.
В.
Next, solve Helena's expenditure minimization problem to find
compensated demand for x and y.
С.
Consider a particular set of parameters: Px=5, Py=10, and I=60.
Draw the budget constraint and the optimal consumption bundle in an
(x,y) graph, being careful to label the axes and any relevant coordinates.
Next, suppose that the price of good y decreases, so that Py'=5. (The
price of x and income remain the same.) Add the new budget line and
optimal basket to the graph.
Expert Solution
Step 1
A.
equating MRS to price ratio:
substituting in budget constraint:
Demand function for x:
Demand function for y:
Step by step
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