Question
For all of this question, assume that the consumer has an endowment = (1,2) of the two goods and that she faces prices p =
For all of this question, assume that the consumer has an endowment = (1,2) of the two goods and that she faces prices p = (p1,p2). (a) Suppose that the consumer's utility function is u(x1,x2) = min{x1,2x2}. Draw an indierence curve for this consumer at utility level 1 (i.e., plot all bundles (x1,x2) such that u(x1,x2) = 1) and derive the consumer's demand functions (x1(p,),x2(p,)). (b) Suppose that the consumer has a Cobb-Douglas utility function u(x1,x2) = x1 1 x2 2 , where 1,2 > 0 are parameters. Draw an indierence curve for this consumer at utility level 1 and derive the consumer's demand functions (x1(p,),x2(p,)). (c) Suppose that the consumer's utility function is u(x1,x2) = max{x1,x2}. Draw an indierence curve for this consumer at utility level 1 and derive the consumer's demand functions (x1(p,),x2(p,)). (d) Suppose that the consumer has a quasilinear utility function u(x1,x2) = x2 1+x2. Draw an indierence curve for this consumer at utility level 1 and derive the consumer's demand functions (x1(p,),x2(p,)). (e) Suppose that the consumer considers the two goods to be perfect substitutes, i.e., that her utility function is u(x1,x2) = x1+x2. Draw an indierence curve for this consumer at utility level 1 and derive the consumer's demand functions (x1(p,),x2(p,)). (f) Suppose that the consumer's utility function is u(x1,x2) = ex1. Draw an indierence curve for this consumer at utility level 1 and derive the consumer's demand functions (x1(p,),x2(p,)).
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