Answer Happy

Question 1 (a) Consider the following utility function, where U is utility, X1 is amount of good 1 and X2 is amount of good 2. The budget equation is P1 X1 + P2 X2 = W where P is price of good 1, P2I s price of good 2 and W is income. = 1 U = 2X13+ 4X2 = Use the Lagrange method; find the Marshallian demand functions for goods 1 and 2. (b) Use a relevant specific utility function in terms of goods X and Y, to show that the Marshallian demand function for good X does not depend on the price good Y and vice versa. (c) Use relevant diagram to explain what you understand by the non-satiation assumption in consumer theory. (d) Use relevant diagrams, explain clearly the income and substitution effects of a fall in the price of one good, while everything else remaining the same. Consider both the Slutsky and Hicks substitution effects.