Susi enjoys her favorite drink (D) and food (F) which she always spends her monthly income on those goods. Her average allocated income spent on drink and food is Rp 3 million, and the current prices of drink and food are Rp 30k and Rp 90k, respectively. Suppose her happiness by consuming those goods can be capture by the utility function as follows: *see image* a. What are her uncompensated (Marshallian) demand functions for drink and food, and calculate how many drinks and food that she currently consumes? Draw and describe how her demand curves for drink and food are shifted by changes in her income or the price of the other good. (hint: Use Lagrangian method). b. If the price of drink increases to Rp 50k, calculate the price elasticity of demand for drink. c. What is her the expenditure function for drink and food? Use the expenditure function to compute the compensated (Hicksian) demand functions for drink and food
PROBLEM 2 – Uncompensated and Compensated
Susi enjoys her favorite drink (D) and food (F) which she always spends her monthly income on those goods. Her average allocated income spent on drink and food is Rp 3 million, and the current prices of drink and food are Rp 30k and Rp 90k, respectively. Suppose her happiness by consuming those goods can be capture by the utility function as follows: *see image*
a. What are her uncompensated (Marshallian) demand functions for drink and food, and calculate how many drinks and food that she currently consumes? Draw and describe how her demand
b. If the price of drink increases to Rp 50k, calculate the
c. What is her the expenditure function for drink and food? Use the expenditure function to compute the compensated (Hicksian) demand functions for drink and food
Given utility function
U=D0.2F0.8
Price of drink Rp30K=Rp0.03M
Price of food Rp90K=Rp0.09M
Income= Rp 3M
Step by step
Solved in 3 steps with 1 images
