1. Derive the indirect utility function as a function of px, py and M, where px and py
are respectively the prices of the two goods x and y, and where M is the consumer's
income.

2. Now calculate the level consumption of both goods and the level of utility achieved
by this consumer if prices and income are as follows: px = 2; py = 3 ;M = 9

3. Now set up the dual of this problem: minimize expenditure subject to the level of
utility that you calculated in part 2 and with prices px and py. Find the expression
for the expenditure function.

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Let

1. Derive the indirect utility function as a function of px, py and M, where px and py
are respectively the prices of the two goods x and y, ...

Solution Summary

Solution provides detailed explanation of how to find utility-maximizing demand for goods given a specific utility function. It also shows how to calculate the expenditure function. While a specific functional form for utility function is used , the steps are detailed enough for a student comfortable with basic calculus to repeat the steps for a different utility function.

... d. Find the income effect of the price change ... The utility maximizing choice occurs when the marginal utility per ... quantity demanded (the Law of Demand); we want ...

... 2, Py=2.5, I=40, find the utility maximizing consumption combination ... b) find the price elasticity of demand at equilibrium ... 4) a) Find the critical values for a ...

... them into the algebraic statement of the utility maximizing rule ... He has $40,000 of his own funds invested in ... 2. The cross elasticities of demand is positive for ...

... Then find another allocation which Pareto-dominates the ... sense that market supply equals market demand. ... At the utility-maximizing point, his indifference curve ...

... to that from the first 4. James finds a new ... a. is buying wine and cheese in the utility-maximizing amounts b ... of the above are true 9. The market demand curve a ...

... treatment from government are called a. utility maximizing b. profit ... rights d. they will have to find a cheaper ... in income c. increases the demand for leisure ...

... 2. A recent study found that an increase in the Federal tax on beer (and thus an ... 8. The utility-maximizing rule: D. is consistent with the law of demand. ...

... 2. A recent study found that an increase in ... This statement indicates that: A. the demand for oranges ... 8. The utility-maximizing rule: A. is inconsistent with ...

... the following would Ms. Tightwad, a utility maximizing consumer, buy ... The consumer needs to find the point where ... curve analysis with the associated demand curves ...