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) Consider a consumer's problem where there are two commodities 1 and 2. Recall that if the demand functions come from the utility maximization problem,
) Consider a consumer's problem where there are two commodities 1 and 2. Recall that if the demand functions come from the utility maximization problem, then: They must be homogeneous of degree 0. That is, x(tp1, tp2, tm) = x(p1, p2, m). They must satisfy the budget constraint: X 2 i=1 pixi(p1, p2, m) = m The Slutsky symmetry: i.e., x2 p1 + x2 m x1 = x1 p2 + x1 m x2 Moreover, xi pj + xi mxj = hi pj Suppose that the demand functions for the two commodities are given by, x1(p, m) = p1 p1 + p2 m p1 x2(p, m) = p1 p1 + p2 m p2 Determine , 1
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