The consumer has an incom Mand a utility function of the form u (x1; x2) = aInx1 + (1 - a)Inx2 If the prices of the two goods are given by p1 and p2, derive the Hicksian demand functions for a given utility level U: Derive the expenditure function. Using the concept of duality, derive the indirect utility function.
The consumer has an incom Mand a utility function of the form u (x1; x2) = aInx1 + (1 - a)Inx2 If the prices of the two goods are given by p1 and p2, derive the Hicksian demand functions for a given utility level U: Derive the expenditure function. Using the concept of duality, derive the indirect utility function.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
The consumer has an incom Mand a utility function of the form
u (x1; x2) = aInx1 + (1 - a)Inx2
- If the
prices of the two goods are given by p1 and p2, derive the Hicksian demand functions for a given utility level U:
- Derive the expenditure function.
- Using the concept of duality, derive the indirect utility function.
Expert Solution
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Step 1
Utility Function : U = aInx1 + (1 - a)Inx2
Price of x1 = p1
Price of x2 = p2
Hicksian demand functions are the compensated demand function which show the relationship between price and quantity demanded remaining isolated with the change in purchasing power arising out of the price changes .
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