1.Derive the income elasticity of demand for individu-als
with (a) Cobb-Douglas, (b) perfect...

Question

1.Derive the income elasticity of demand for individu-als
with (a) Cobb-Douglas, (b) perfect substitutes, and (c) perfect complements
utility functions. M

2. Ryan has a constant elasticity of substitution utility
function U = q1ρ + q2ρ.

a. What is his income elasticity for q1? 

b. Derive his Engel curve for q1. M

3. Sally’s utility function is U(q1, q2)
= 4q1 0.5 + q2.Derive her Engel curves. M

Robert · Accepted Answer

Price of good q1 = p
Price of good q2 = $1.00
And income =Y.
So, Budget line ; Y = p1*q1 + p2*q2 = p*q1 + q2
Income elasticity of demand (Ey) = %change in quantity demanded/ % change in income
= 
Del denotes partial derivative of Quantity w.r.t Income.
a). Cobb douglas utility function:

1.Derive the income elasticity of demand for individu-als with (a) Cobb-Douglas, (b) perfect substitutes, and (c) perfect complements utility functions. M 2. Ryan has a constant elasticity of...

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