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MBA, Ph.D in Management
Harvard university
Feb-1997 - Aug-2003
Professor
Strayer University
Jan-2007 - Present
2 Deriving Demand Functions Consider a person with the following utility.r function when consuming two goods, :1: and z,
U = Enigma. a] 1‘Jif'hat is the marginal rate of substitution? b] As a function of the price of good :1: {pm}, the price of good 2 [172} and the income level {Y}, derive the demand functions for goods I and z. 3 Income and Substitution Efl'ects Using the results from question 2, answer the following questions: a] Suppose pm: 5, p3 = Q and 1’ = lfll]. 1|iiifhat is the optimal bundle consumed? [Label this as the initial
bundle] b] Now suppose that the price of good :1: decreases to p: = 2.5. Now what is the optimal bundle consumed?
[Label this as the final bundle] c] Calculate the decomposition bundle associated with this price change. [The answers won’t be integers] d] Calculate the Income Efl'ect, Substitution Effect, and Total Effect for good I.
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