Assume that a person's utility over two goods is given by
U (x1, x2) = x1 + ln x2
The price of good x1 is equal to p1 and the price of good x2 is p2. The total income of the individual is given by I.
a) Write down the budget constraint of this person.
b) Determine the demand functions for x1 and x2. When will the person only demand x1 or x2?
c) Is good x1 a normal or an inferior good? What about good x2? Explain your results.
d) Calculate the own-price elasticities of demand for x1 and x2.
e) Calculate the cross-price elasticities of demand for both goods.