Alex spends his money on food, a normal good, and all other goods (also normal). Decompose the total effect of a decrease in food prices into substitution effects and income effects. (i.e. draw the graph) 2. If Maria's utility function is U = 2q^0.5 + q^2: a. What are her demand functions for the two goods? b. What are her income elasticities for the two goods? c. What are her Engel Curves for the two goods? 3. Bill's utility function is U = 2ln(q) + 2ln(q). What is his compensated demand function for q1? 4. Siggi's quasilinear utility function is U = 4ln(q1) + q. His budget for these goods is Y = 10. Originally, the prices are p1 = p = 1. However, the price of the first good rises to p = 2. Discuss the substitution, income, and total effects on the demand for q1. 5. If the inverse demand function for radios is p = a - bg, what is the consumer surplus if the price is a/2? 6. Marvin has a Cobb-Douglas utility function U = q^0.5 * q^0.5, his income is Y = 100, and initially he faces prices of p1 = 1 and p2 = 2. If p1 increases to 2, what are his CV, CS, and EV? 7. Eangwen's utility is U(q1, q2) = q1 + q2. The price of each good is $1, and her monthly income is $4,000. Her firm wants her to relocate to another city where the price of q1 is $2, but the price of q2 and her income remain constant. What would be her equivalent variation or compensating variation?
Alex spends his money on food, a normal good, and all other goods (also normal). Decompose the total effect of a decrease in food prices into substitution effects and income effects. (i.e. draw the graph)