Scribd
Upload
4 views2 pages

TSET1

test

Uploaded by

Bright Baah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
4 views2 pages

TSET1

test

Uploaded by

Bright Baah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

UNIVERSITY OF CAPECOAST

COLLEGE OF HUMANITIES AND LEGAL STUDIES

SCHOOL OF ECONOMICS

ADVANCED MICROECONOMICS

TUTORIAL SET 1.

Question One.
Consider an economy with one consumer and two goods X(clothing) and Y(food) with
respective prices Px and Py. The utility function is given as U (X, Y) = XY. The consumer’s
income is denoted M.

a. Write down the primal problem and the dual problem.

b. Derive the Marshallian demand functions.


c. Calculate the optimal value of the Lagrange multiplier for the consumer and explain its
meaning.

d. Find the indirect utility function I. Prove the Roy’s identity ii. Prove that the

indirect utility function is homogenous of degree zero

e. Find the expenditure function and derive the Hicksian demand function using the
shepherd lemma condition.
Now assume that income M is 24 while the initial prices are GHs 2 and GHs 1 for good x and
y respectively. For unknown reasons the price of clothing falls to GHs1.
f. Calculate the substitution effect, the income effect and the total effects

g. Represent your answer in (f) on a diagram

i. Determine whether good 1 is an inferior good or a normal good.

QUESTION 2.

Consider and individual with the utility function U (X1, X2) = (ꭤ1𝑋1−𝛽 + ꭤ2𝑋2−𝛽)−1⁄𝛽. The
prices of X1 and X2 and his income are Px1 > 0, Px2 > 0, and 1> 0.

a. Show that this utility function satisfies diminishing marginal rate of substitution
b. Derive the Marshallian (uncompensated) demand functions for X1 and X2.

C. Derive indirect utility function


d. Without solving his dual problem (i.e. minimizing expenditure subject to a given utility),
derive his expenditure function.

You might also like