Question
Consider a consumer (Abby), whose preferences are described by utility (, ) = 10x^2y a)Solve the utility maximization problem to find the ordinary demand functions
Consider a consumer (Abby), whose preferences are described by utility (, ) = 10x^2y
a)Solve the utility maximization problem to find the ordinary demand functions and the indirect utility function. How much of the budget is spent on each good?
b)Solve the expenditure minimization problem to find the compensated demand functions
x^c(_x , _y , bar) and y^c(_x , _y , bar).
c)Show that the elasticities-based Slutsky equation holds for good x, in both the own-price and the cross-price formulations:
- (_x)(p_x)=(_x^)((_x)(_x, I))
- (_x)(p_y)=(_x^)((_y)(_x, I))
where _x is the share of the budget spent on x, and _y is the share spent on y.
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