Question
Consider an economy with three goods. Suppose that a consumer has a continuous utility function satisfying local nonsatiation. Suppose also that the consumer's Walrasian demands
Consider an economy with three goods. Suppose that a consumer has a continuous utility function satisfying local nonsatiation. Suppose also that the consumer's Walrasian demands for goods 1 and 2 when p3 = 1 satisfy
x1(p1, p2, 1, W) = a1 + b1p1 + c1p2 + d1p1p2
x2(p1, p2, 1, W) = a2 + b2p1 + c2p2 + d2p1p2
(a) State Walras' law and use it to find the Walrasian demand for good 3. (It's fine to just give the demand when p3 = 1.)
(b) State a mathematical result about the homogeneity of Walrasian demands and use it to find the consumer's Walrasian demands at other values of p3.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started