Question
Suppose u = xy, x is wheat, y is an index of all other goods. a. Suppose px is price of wheat and py is
Suppose u = xy, x is wheat, y is an index of all other goods. a. Suppose px is price of wheat and py is the price of y. Derive the consumer's ordinary demand functions for x and y. b. Find the consumer's expenditure function. c. If py = 1, income is $100 and the price of wheat, falls from $1 to $0.25 due to the success of the Indus Valley project. Evaluate consumers' gains in terms of CV. d. Suppose that at the same time as the change occurred in part 'b' above, the price of y had risen to $2.25. What is the CV for the two price changes? e. Derive the compensated demand curve for x. f. Find the first order derivative of the consumer's expenditure function (found in part 'b' above) with respect to price of x. What do you observe based on your result in parts 'e' and 'f'?
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