Consider a consumer with the following Cobb-Douglas utility function U(x,y) = x¹/³.y2/3 Assume that the consumer faces a price of $1 for y, and a total income/budget of I. The price of r is left unrestricted as pr. (a) Find the marginal rate of substitution, MRS, for this consumer. (b) Set up this consumer's utility maximization problem and find demand for x and y. (c) Solve (or rework) for income/budget I, in order to obtain the Engel curve of r. Is the slope of the Engel curve positive? Interpret: is the good normal or inferior?

Consider a consumer with the following Cobb-Douglas utility function U(x,y) = x¹/³.y2/3 Assume that the consumer faces a price of $1 for y, and a total income/budget of I. The price of r is left unrestricted as pr. (a) Find the marginal rate of substitution, MRS, for this consumer. (b) Set up this consumer's utility maximization problem and find demand for x and y. (c) Solve (or rework) for income/budget I, in order to obtain the Engel curve of r. Is the slope of the Engel curve positive? Interpret: is the good normal or inferior?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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