Homework 4 Short Answer Question
Liza's utility from consuming two goods, $x_1$ and $x_2$, is $U(x_1, x_2) = A(x_1)^\alpha (x_2)^\beta$,
where $A$, $\alpha$, $\beta$ are positive numbers. The prices of the two goods are $p_1$ and $p_2$,
and Liza's income is $w > 0$.
a) Set up the constrained maximization problem and solve for Liza's optimal
consumption bundle.
b) How does Liza's optimal consumption bundle change in her income and the
prices? What is the economic intuition for your results?
