Assume a consumer with the given utility function: U = 3y1y2 + 5.
- Suppose y2 = 1, derive the marginal utility schedule for y1. In what direction is it moving?
- Obtain indifference curves for U = 23 and for U = 59.
- Suppose money income = $18.00, p1 = $6.00, and p2 = $2.00, determine the consumer equilibrium position by using the above indifference curves.
- Suppose money income = $18.00, p1 = $2.00, and p2 = $2.00, determine the consumer equilibrium position by using the above indifference curves.
- Employing the results of (3) and (4):
- How much was the rise in demand for good 1 caused by the substitution effect? How much was caused by the income effect?
- Draw the consumer demand curve for good 1
- Find out whether goods 1 and 2 are substitutes, complements, or independents.
- Derive the price elasticity of demand and define whether it is elastic, inelastic, or unitary elastic.
- Suppose that money income rise from $18.00 to $30.00 while prices remain constant at p1 = $6.00 and p2 = $2.00. Determine the new consumer equilibrium position. By using the results just obtained, classify goods 1 and 2 according to whether they are superior, normal, or inferior goods.