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Toni gets utility from two goods, xl and x2. Let xi (P, P2, I) and xf (P, P2,U) be the compensated and uncompensated demand
Toni gets utility from two goods, xl and x2. Let xi (P, P2, I) and xf (P, P2,U) be the compensated and uncompensated demand functions for x1, respectively. Define the income elasticity of demand for xl. Suppose pl=$5, p2-$2, and I=$18. At these prices and income levels, x1*=3. In = -4 and x(PP,0) = -2. Use the Slutsky equation to determine addition, suppose axi(P.pl) 1 1 the income elasticity of demand for x1. Is x1 an inferior, normal, or luxury good?
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Microeconomics An Intuitive Approach with Calculus
Authors: Thomas Nechyba
1st edition
538453257, 978-0538453257
