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A consumer has the following utility function: U (x, x) = (x+5) (x + 2) Prices of the two goods x, and x respectively
A consumer has the following utility function: U (x, x) = (x+5) (x + 2) Prices of the two goods x, and x respectively are p, and p and the consumer has income m. We assume that all prices and income are strictly positive. Furthermore, throughout this question we assume that m is high enough so that both goods are consumed in strictly positive amounts in equilibrium. 1) Solve the consumer's optimization problem and express the demand for the two goods in terms of prices and income. (1) Compute the missing values of elasticities in the following table assuming M = 10. Pr = 2, and P = 1. Income elasticity Absolute value of own price. elasticity Cross price elasticity X X
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