Consumer with utility function


Assignment: Consider a consumer with utility function u(x1,x2) = x10.5 x20.5

Problem 1: Find the demand for any vector of strictly positive prices, p = (p1,p2)>>0 and any level of income, M>0,. Why does the consumer end up spending her entire income (i.e., choose a consumption point on the budget line)?

Problem 2: Sketch some indifference curves of the utility function u and draw the price consumption curve (PCC), which results when varying the price of the first good. Does the first good have a normal price effect, and how does this show in the PCC?

Problem 3: Is the following statement true or false: A normal good (a good with positive income effect) cannot be a Giffen good. Explain briefly why you arrive at your conclusion.

Solution Preview :

Prepared by a verified Expert
Microeconomics: Consumer with utility function
Reference No:- TGS01748027

Now Priced at $25 (50% Discount)

Recommended (95%)

Rated (4.7/5)

2015 ┬ęTutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.