ECON 2 Midterm: Economics 210A UCSB Midterm2withanswers2016

• School: UCSB
• Department: Economics
• Course: ECON 2
• Professor: All

Document Summary

Answer question 1 and any 3 of the remaining 4 questions. 1 ) a consumer has utility function u(x1, x2) = 1 x1: find this consumer"s marshallian demand function for each good. Answer: x1(p1, p2, m) = x2(p1, p2, m) = m. 2: find this consumer"s indirect utility function. Answer: you can get your answer by substituting the marshallian demands that you found into the de nition of indirect utility which is v(p, m) = u(x1(p, m), x2(p, m)). v(p1, p2, m) = m p1 + 4p1/2. Another way of writing the same answer is v(p1, p2, m) = m. 2 (cid:17)2: find this consumer"s expenditure function. Since v(p, e(p, u)) = u, it follows that e(p1, p2, u) = u and therefore e(p1, p2, u) = u(cid:16)p1 + 4p1/2. A side remark: to check your answer (and see how these structures are related), you could notice that the denominator of the indirect utility function is.