Question
the utility that ann recieves by consuming food F and clothing C is given by U=FC+F. food costs $Pf a unit and clothing cost $Pc
the utility that ann recieves by consuming food F and clothing C is given by U=FC+F. food costs $Pf a unit and clothing cost $Pc a unit and has $m income. When thinking about a graph consider F to be on the horizontal axis and clothing to be on the vertical axis.
a) find expressions for income elasticity, own price elasticity and cross price elasticity using the marshallian demand function
b) use the slutsky equation to prove that
i= (i^h)- (si)(m)
{subscripts are "i" and "m"}
where si= {(pi)(xi)}/m or the share of expense on product i out of total income m & where i is the usual own-price elasticity, (i)^h is the Hicksian (or income- compensated or pure substitution) elasticity, and m is income elasticity.
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