2 Giffen goods Suppose that an agent has utility function U(a:1,a:2) = n1in{a:1 + 10, 2331 + 256;} over X = R1. 1. Plot the
2 Giffen goods Suppose that an agent has utility function U(a:1,a:2) = n1in{a:1 + 10, 2331 + 256;} over X = R1. 1. Plot the set of all kinks of the utility function. 2. On the same graph as the previous part, plot the indifference curves through the bundles (1, 1), (4, 4), and (12, 12). 3. Suppose w = 60 and p1 = 12. Calculate the consumer's Marshallian demand for each good when 392 = 4 and p2 = 9. 4. For the same price change, calculate how much the consumer's Hicksian demand for each good changes. How much additional wealth does the consumer need to afford the Hicksian demand at the new prices? 5. For the wealth change you identied in the previous part, calculate how much the consumer's demand for each good changes when prices are (p1, pg) = (12, 4)
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