Question
Clarisse, a self-confessed sweet tooth, regularly consumes chocolates and doughnuts. Her utility function is ( , )= where xC and xD denotes quantity for chocolates
Clarisse, a self-confessed sweet tooth, regularly consumes chocolates and doughnuts. Her utility function is (,)= where xC and xD denotes quantity for chocolates and doughnuts, respectively. The unit price per chocolate is R15 and per doughnut is R10, while Clarisse's income allocation is R60 a day. The price per doughnut suddenly falls to R6.
1. Derive Clarisse's demand functions for chocolates and doughnuts.
2. Derive, with supporting mathematical techniques, the Slutsky income effect and substitution effect of the price change from the demand functions derived in 3.1.1
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