Let a consumer have preferences described by the utility function and an endowment of 2 units of…


Let a consumer have preferences described by the utility function

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and an endowment of 2 units of good 1 and 2 units of good 2.

a. Construct and sketch the consumer’s budget constraint. Show what happens when the price of good 1 increases.

b. By maximizing utility, determine the consumer’s demands.

c. What is the effect of increasing the endowment of good 1 upon the demand for good 2? Explain your finding.

 

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