Smith's utility function is u(x₁,x₂)= x₁ + lnx₂

x₁-stamps x₂-beer

smith's budget: p₁x_{1 +} p₂x_{2 =m}

p₁- price of stamps

p₂- price of beer

m- smith's budget

a) what is smith's demand for beer and stamps?

b) is it true that smith would spend every doller in additional income on stamps?

c) what happens to demand when smith's income changes (i,e. find the income elasticity)

d) what happens to demand when p₁ and p₂ increase (i,e. find the price elasticity)