Only 3.2 Question 33.1 Slutsky's equation relates the Marshallian demand function to the Hicksian demand func-tion, and therefore provides a way in which to decompose the total effect of a price changeon quantity demanded into the substitution and income effects. Provide an expression forthe general Slutsky equation of a good (x;) with respect to changes in the price of x;, andclearly label the total effect, substitution effect and income effect.3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility functionv(р, у)(1-a)and Hicksian demand function for good 1* (p, u)P2 ( Pi= auPiP2Demonstrate that the Slutsky equation holds for the own-price effect for good r1-

The Slutsky Equation is used to understand how changes in the price of a good affect the quantity…

3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function v(p, y) and Hicksian demand function for good 1 = y (1-a) (p,u)=au Pip₂ a P2 P1 P1 P2 Demonstrate that the Slutsky equation holds for the own-price effect for good 2₁.

3.2 Now consider the case of a consumer with Cobb-Douglas indirect utility function v(p, y) and Hicksian demand function for good 1 = y (1-a) (p,u)=au Pip₂ a P2 P1 P1 P2 Demonstrate that the Slutsky equation holds for the own-price effect for good 2₁.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

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