Demand:

Consider Dave. His utility is represented by U(x₁, x₂) = x₁² x₂.

(Dave's MU₁ = 2x₁ x₂ and MU₂ = x₁²)

a. When prices are p₁ and p₂ and Dave's income is m. What is his budget equation?

b. What is the slope of Dave's budget line?

c. What are the x₁ and x₂ intercepts of Dave's budget line?

d. What is the slope of any of Dave's indifference curves? (give the formula)

e. (Tangency condition) Dave's indifference curve will be tangent to his budget line at the point (x₁, x₂) if the following equation is satisfied

You now have two equations, the budget equation (a) and the tangency condition (e) that must be satisfied by the bundle demanded.

Find his demand functions for good 1, x₁(p₁, p₂, m) and good 2, x₂(p₁, p₂, m).

1. x₁(p₁, p₂, y) =
2. x₂(p₁, p₂, y) =