A consumer consumes goods 1 and 2. The price of good 1 is p and the...

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A consumer consumes goods 1 and 2. The price of good 1 is p and the price of good 2 is p2. The utility function of the consumer is U(x1, x2) where U(x1, x2) > 0, U2(x1, x2) > 0, U,1(x1, x2) < 0, U1,2(x1, x2) > 0, U2,2(x1, x2) < 0. The budget of the consumer is m and the consumer spends all of it on goods 1 and 2. a) (3 pts) Explain why at the optimal consumption decision, the consumer will consume x1, x2 such that U1(x1, x2)P2U2(x1, x2)P1 b) (2 pts) Use the previous condition with the consumer's budget constraint to express the optimal consumption choice implicitly as a system of 2 equations. dp1' dp2 dm c) (10 pts) Using total differentials, compute di, d and d. Be sure to verify that these derivatives can be computed. d) (3 pts) Using your previous answers, what can you conclude about what type of good is good 1 (ordinary, giffen, substitute, complement, normal, or inferior)? A consumer consumes goods 1 and 2. The price of good 1 is p and the price of good 2 is p2. The utility function of the consumer is U(x1, x2) where U(x1, x2) > 0, U2(x1, x2) > 0, U,1(x1, x2) < 0, U1,2(x1, x2) > 0, U2,2(x1, x2) < 0. The budget of the consumer is m and the consumer spends all of it on goods 1 and 2. a) (3 pts) Explain why at the optimal consumption decision, the consumer will consume x1, x2 such that U1(x1, x2)P2U2(x1, x2)P1 b) (2 pts) Use the previous condition with the consumer's budget constraint to express the optimal consumption choice implicitly as a system of 2 equations. dp1' dp2 dm c) (10 pts) Using total differentials, compute di, d and d. Be sure to verify that these derivatives can be computed. d) (3 pts) Using your previous answers, what can you conclude about what type of good is good 1 (ordinary, giffen, substitute, complement, normal, or inferior)?

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a 3 pts Explain why at the optimal consumption decision the consumer will consume x1 x2 such that U1... View the full answer