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    1. The document contains 6 questions regarding consumer theory and utility maximization. It includes calculating marginal rates of substitution, finding optimal consumption bundles, deriving indifference curves from utility functions, and deriving demand functions from indirect utility and expenditure functions. 2. Questions involve utility maximization given budget constraints for different utility functions, including Cobb-Douglas, CES, and linear forms. Optimal choices are found for consumption of goods x1 and x2. 3. Indirect utility, expenditure, and Hicksian demand functions are derived for a CES utility function, and Marshallian demands are found using Roy's Identity from an indirect utility function.

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    ps2 Key

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    asifmabbas
    113 views1 page
    1. The document contains 6 questions regarding consumer theory and utility maximization. It includes calculating marginal rates of substitution, finding optimal consumption bundles, deriving indifference curves from utility functions, and deriving demand functions from indirect utility and expenditure functions. 2. Questions involve utility maximization given budget constraints for different utility functions, including Cobb-Douglas, CES, and linear forms. Optimal choices are found for consumption of goods x1 and x2. 3. Indirect utility, expenditure, and Hicksian demand functions are derived for a CES utility function, and Marshallian demands are found using Roy's Identity from an indirect utility function.

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    Economics solutions north south university

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    ps2_key

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    1. The document contains 6 questions regarding consumer theory and utility maximization. It includes calculating marginal rates of substitution, finding optimal consumption bundles, deriving indifference curves from utility functions, and deriving demand functions from indirect utility and expenditure functions. 2. Questions involve utility maximization given budget constraints for different utility functions, including Cobb-Douglas, CES, and linear forms. Optimal choices are found for consumption of goods x1 and x2. 3. Indirect utility, expenditure, and Hicksian demand functions are derived for a CES utility function, and Marshallian demands are found using Roy's Identity from an indirect utility function.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    113 views1 page

    ps2 Key

    Uploaded by

    asifmabbas
    1. The document contains 6 questions regarding consumer theory and utility maximization. It includes calculating marginal rates of substitution, finding optimal consumption bundles, deriving indifference curves from utility functions, and deriving demand functions from indirect utility and expenditure functions. 2. Questions involve utility maximization given budget constraints for different utility functions, including Cobb-Douglas, CES, and linear forms. Optimal choices are found for consumption of goods x1 and x2. 3. Indirect utility, expenditure, and Hicksian demand functions are derived for a CES utility function, and Marshallian demands are found using Roy's Identity from an indirect utility function.

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    Download as pdf or txt
    of 1

    PS2: Due April 9th 10: 30 am in office NAME of group members:Key

    1. Given the utility function: 𝑢(𝑥1 , 𝑥2 ) = 2𝑙𝑛𝑥1 + 𝑙𝑛𝑥2


    a. Find the expression for marginal rate of substitution
    −2𝑥
    MRS= 𝑥 2
    1
    b. Assume that 𝑥2 = 4 & 𝑥1 = 2. (i) compute the MRS (ii) provide an interpretation for
    the MRS
    (i) -2
    (ii) The consumer will need 2 units of 𝑥2 for every 1 unit of 𝑥1 that he gives up, to
    keep utility constant.
    2. Given the utility function: 𝑢(𝑥1 , 𝑥2 ) = 0.5𝑙𝑛𝑥1 + 0.5𝑙𝑛𝑥2 , m=$10, 𝑝1 = $1 &𝑝2 = $2.
    Find the optimal choice for 𝑥1 &𝑥2 .
    𝑥1 = 5 &𝑥2 = 2.5
    3. 𝑥1 &𝑥2 are complements. The consumer consumes 4 units of 𝑥1 for every 1 unit of 𝑥2 .

    a. Write out the utility function and the equation for the budget line.
    𝑢(𝑥1 , 𝑥2 ) = 𝑚𝑖𝑛{0.25𝑥1 , 𝑥2 }
    𝑠𝑡: 𝑝1 𝑥1 + 𝑝2 𝑥2 = 𝑚
    b. Assume that m=$100, 𝑝1 = $5 &𝑝2 = $2. Find the optimal choice for 𝑥2 .
    𝑥2 = 4.545
    4. 𝑥1 &𝑥2 are substitutes. The consumer is willing to substitute 2 units of 𝑥1 for every 1 unit
    of 𝑥2 . Assume that m=$100, 𝑝1 = $4 &𝑝2 = $8. Find the optimal choice for 𝑥1 &𝑥2 .

    Note: the slope of the budget constraint = slope of the indifference curve = -0.5
    (𝑥1 , 𝑥2 ) = (𝑥1 , 12.5 − 0.5𝑥1 )
    5. Given the utility function: 𝑢(𝑥1 , 𝑥2 ) = 2ln(𝑥10.5 + 𝑥20.5 )
    a. Find the indirect utility function
    𝑚 𝑚
    𝑣(𝑝, 𝑚) = +
    𝑝1 𝑝2
    b. Find the expenditure function
    𝑢𝑝1 𝑝2
    𝑒(𝑝, 𝑢) =
    𝑝1 + 𝑝2

    c. Find the Hicksian demand function


    𝑢𝑝2 (𝑝1 + 𝑝2 ) − 𝑢𝑝1 𝑝2
    ℎ1 (𝑝, 𝑢) =
    (𝑝1 + 𝑝2 )2

    𝑢𝑝1 (𝑝1 + 𝑝2 ) − 𝑢𝑝1 𝑝2


    ℎ2 (𝑝, 𝑢) =
    (𝑝1 + 𝑝2 )2

    𝑚
    6. Given the indirect utility function 𝑣(𝑝1 , 𝑝2 , 𝑚) = 𝑝 . Find the Marshallian demands
    1 +𝑝2
    𝑚
    𝑥𝑖 (𝑝, 𝑚) = 𝑝 (Roy’s Identitiy)
    1 +𝑝2

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