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1. A consumer's utility is w(x1, x2) = /x1x2 . Given this, her Marshallian demand will be x(PI,pz, Y) = - and x2(p1,p2, Y) =
1. A consumer's utility is w(x1, x2) = /x1x2 . Given this, her Marshallian demand will be x(PI,pz, Y) = - and x2(p1,p2, Y) = . (You don't have to show this.) Initially p1 = 1, p2 = 2, and Y = 24. Then the price of good 1 rises to phew = 4. (i) On an accurate, well-labeled diagram, illustrate how the change xew - x xold in good 1 consumption may be decomposed into income and substitution effects. And, (ii) Work out the size of the income and substitution effects mathematically. (The textbook is obsessed with doing extra work to report these as elasticities. I don't care about that at all. I'm just asking how much of the total change (xnew - xold is income vs. substitution effect.)
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