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Assume that utility over two goods is given by U(x1,x2) = 0.3lnx1 +0.7lnx2. The price of good x1 is equal to p1 and the price of good x2 is p2. The total income of the individual is given by I.
a. Write down the budget constraint of this person.
b. Determine the demand functions for x1 and x2.
c. Is good x1 a normal or an inferior good? What about good x2? Explain your results.
d. Calculate the own-price elasticities of demand for both goods.
e. Calculate the cross-price elasticities of demand for both goods
The key condition for equilibrium to occur in a market is: A. the demand curve equals the supply curve. B. quantity demanded equals quantity supplied. C. price equals quantity. D. demand for one good equals demand for all other goods.
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