A.1 Individuals in a market each have a total budget y to spend on two goods q1 and q2 at the prices p1 and p2 respectively. Their preferences are described by the utility function Bqı – (A – 92)° , if q2 < A; и (q1, Ф2) — (1) Bq1, if q2 > A; where A, B > 0 are preference parameters. (a) Show that the quantity demanded of good 2 is if - Bp2 2 < ; P2 f2 (y, P1, P2) А — В2, if - Вр 0, if < 2 P1 Assume for parts (b) and (c) that prices are such that individuals consume positive quantities of both goods. (b) Find the expenditure function corresponding to these preferences. V
A.1 Individuals in a market each have a total budget y to spend on two goods q1 and q2 at the prices p1 and p2 respectively. Their preferences are described by the utility function Bqı – (A – 92)° , if q2 < A; и (q1, Ф2) — (1) Bq1, if q2 > A; where A, B > 0 are preference parameters. (a) Show that the quantity demanded of good 2 is if - Bp2 2 < ; P2 f2 (y, P1, P2) А — В2, if - Вр 0, if < 2 P1 Assume for parts (b) and (c) that prices are such that individuals consume positive quantities of both goods. (b) Find the expenditure function corresponding to these preferences. V
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Individuals in a market each have a total budget y to spend on two goods q1 and q2 at the prices p1
and p2 respectively. Their preferences are described by the utility function below.
I need help with question b) Find the expenditure function corresponding to these preferences.
Transcribed Image Text:A.1 Individuals in a market each have a total budget y to spend on two goods q1 and q2 at the prices p1
and p2 respectively. Their preferences are described by the utility function
Bqı – (A – 92)° , if q2 < A;
и (q1, Ф2) —
(1)
Bq1,
if q2 > A;
where A, B > 0 are preference parameters.
(a) Show that the quantity demanded of good 2 is
if
-
Bp2
2 < ;
P2
f2 (y, P1, P2)
А — В2,
if
-
Вр
0,
if < 2
P1
Assume for parts (b) and (c) that prices are such that individuals consume positive quantities of both
goods.
(b) Find the expenditure function corresponding to these preferences.
V
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