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1. Provide a labelled Indifference Curve Diagram. A maximizing consumer with u(x, y) = x1/2y1/2 is endowed with x = 8 and y = 4
1. Provide a labelled Indifference Curve Diagram. A maximizing consumer with u(x, y) = x1/2y1/2 is endowed with x = 8 and y = 4 units of the goods. Prices are originally px = 1, py = 1. Now px = 4. a. Show the Hicksian SE, EIE and OIE b. Explain why a change in the price of good x will affect the demand for good y. Cobb Douglas utility functions do not usually have cross-price effects. Quasi-Linear has no Income Effects 2. A consumer with u(x, y) = 4x1/2 + y has an endowment of x = 8 and y = 8. Good y can be bought and sold for 1 dollar. The price of good x, initially 1 dollar, increases to 2 dollars. Show Hicksian SE, EIE and OIE.9. A maximizing consumer with u(x, y) = min(3x, y) is endowed with i = 200 and v = 300 units of the goods. Prices are originally px = 1/2, py : 1/2. Now px = 1. Provide a labelled Indifference Curve and Budget Line Diagram that illustrates and quantifies: the Endowment as Bundle E, the original choice as Bundle A, the Substitution Effect as Bundle B, the final choice as Bundle C and the Endowment Effect as Bundle D. Use arrows to clearly label: the Ordinary Income Effect and the Endowment Income Effect
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