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QUESTION 32 Chapter 8 introduces the Constant-Elasticity-of-Substitution (CES) utility function, which provided a breakthrough for intra-industry trade theory. Suppose that a consumer with this type
QUESTION 32 Chapter 8 introduces the Constant-Elasticity-of-Substitution (CES) utility function, which provided a breakthrough for intra-industry trade theory. Suppose that a consumer with this type of utility function (see equation 8-2) consumes three goods: coffee, tea and milk. a. Use a numerical example to show that if p = l the consumer is indifferent to consuming three units of coffee or three units of a mix of the goods. b. Use a numerical example to show that if 0
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