**Problem 1:** This question examines the **Lump Sum Principle** on subsidies. Consider an individual with a Cobb-Douglas utility function $ U(x, y) = x^{1/2}y^{1/2} $, and faces prices $ p_x, p_y $ with an income of $ I $.(a) First, find the optimal demand for $ x $ and $ y $ and compute the indirect utility function, $ V(p_x, p_y, I) $.

Utility function : U = x0.5 y 0.5 The utility function is Cobb - Douglas .Budget Constraint : Px…

This questions examines the Lump Sum Principle on subsidies. Consider an indi- vidual with a Cobb-Douglas utility function U(x, y) = x¹/2y¹/2, and faces prices px, Py with an income of $1. (a) First, find the optimal demand for x and y and compute the indirect utility function, V(Pr. Pus I).

This questions examines the Lump Sum Principle on subsidies. Consider an indi- vidual with a Cobb-Douglas utility function U(x, y) = x¹/2y¹/2, and faces prices px, Py with an income of $1. (a) First, find the optimal demand for x and y and compute the indirect utility function, V(Pr. Pus I).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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