Marshallia and hicksian demand functions

Assignment Help Macroeconomics

Reference no: EM1316023

Use the utility function to answer the questions, below: (x1, x2) = exp (√(x₁) + √(x₂)

Use the positive square root. Recall how to differentiate the exponential function:

∂/∂x exp (f(x)) = f'(x) exp (f(x)) Also, you may find it useful to express exp(f(x)) as e^(f(x))

a) Derive the Marshallian (ordinary) demand function for good1 and 2, x_i*(p,l), i =1,2 . Then derive the indirect utility function (p,l).

b) Derive the Hicksian (compensated) demand functions, x_i^c (p, v), i=1, 2 for goods 1 and 2. Then derive expenditure function, E (p, v). c) Compute ∂x₁/ ∂p₁ and ∂x₂/ ∂p₁ prove it can be written as the sum of substitution and income effects (that is, show that the expressions you obtain are in fact substitution and income effects)

Reference no: EM1316023

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