To calculate Hicksian demand (also compensated demand), income m" is used, which keeps theutility level constant after a price change, so that m" is implicitly defined byu(x(p, m)) = u(x(p', m))%3D2/3 1/3A consumer with income m=12 has the utility function u:R2+>R+ given by u (x1, x2) = x x,The price of good 1 changes from p1=1 to p'1=8.Note: the optimal decision is *1(P1, P2, m)r2(P1, P2, m):3Pi3.P2How high is m-?Choose one or more answers:a.m=48.b.m"=12.c.m=36.d.m"=24.

We need the new income, m', to be such that u(x(p1, m))=u(x(p1', m')) That is the new income should…

Answered: To calculate Hicksian demand (also…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Similar questions

A consumers utility function is given by U(X1, X2)=Xa1X21-a where A>0, 0<a<1 A consumer also faces the prices p1 and p2 and has income levels. Obtain the consumers demand functions X1 and X2 as well as the indirect utility function of the consumer
Consider an individual with the following utility function: Derive step-by-step both corresponding Hicksian demand functions depending on the different prices (P₁, P2) and a fixed utility level u. The equation given In picture.do This in 10 minutes.
A consumers utility function is given by U(X1, X2)=Xa1X21-a where A>0, 0<a<1 A consumer also faces the prices p1 and p2 and has income level m. Obtain the consumers demand functions X1 and X2 as well as the indirect utility function of the consumer
IMPORTANT: Pc=2 , Pp=4, I=80
Matt gets utility from commodities X₁ and x2 and his preferences can be represented by the utility function, U(x₁, x₂)=10(x₁)(x₂). Matt minimizes his expenditures subject to achieving utility level Uo. Matt's compensated demand function for X₁, X₁ (P₁, P2, Uo), is O (Uo/10)1/2(p2/P1) 2/3 1/(2p1) O (10U0)¹/2(p2/P1)1/2 (Uo/10)¹/3 (p1/p2)1/3 O ((Uo/10)1/2(p2/P₁)1/2 O (10)(Uo)2/3(P₂/P1)2/3
Question 8 Note: This question is similar to end-of-chapter problem 3.2 and it is restated here in a multiple choice format. For a utility function for two goods to be strictly quasi-concave (i.e. convex indifference curves), the following condition must hold: UxxU²x - 2UxyUxUy + UyU² 0: the function is strictly quasi- concave. O Because all of the first order partial derivatives are positive, we must only check the second order partial derivatives. Uxx, Uyy, Uxy > 0: the function is not necessarily strictly quasi-concave. Because all of the first order partial derivatives are positive, we must only check the second order partial derivatives. Uxx = Uyy = 0, Uxy > 0: the function is strictly quasi- concave. O Because all of the first order partial derivatives are positive, we must only check the second order partial derivatives. Uxx = Uyy = 0, Uxy < 0: the function is not strictly quasi-concave. Question 10 Note: This question is similar to end-of-chapter problem 3.5a and it is…
4.
2. Find Hicksian demand by duality for utility function: u(x1,x2) = 2/x1 + 4/x2
Consider the utility function u(x₁, x₂) = √√x₁+√√x₂. Prices are p₁, P2, and income is I. Then due to a tax of 3 dollars per unit, the price of good 1 increases to p₁ = 4. Compute the utility associated with the optimal choice of the consumer. Determine the compensating variation in income CV. Determine the equivalent variation in income EV.
Suppose Mary has the utility function U(1, 22) = v(æ1) + 2x2 with v such that v > O and v" < 0. Suppose initially Mary chooses the optimal bundle æ = 10 and x2 = 5. What is the new optimal x1 if prices for both r1 and x2 are cut in half (reduced by 50%)? 1 = 20 X1 = 5 O æ = 10 X1 = 11.7 %3D None of the other answers are correct

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