ECO 303: Intermediate Microeconomic Theory Problem Set5

Question 3
A consumer has utility function given by u(x1 , x2 ) = √

x1 x 2 .

(i ) Suppose the price of good 2 and income are fixed at $5 and $100, respectively. Find the inverse demand function for good 1.(P1 on the left hand side). Is this ordinary demand? Why?
(ii ) Now assume P1 and P2 are fixed at $3 and $5. What is the functional form of engle curve for both goods? Are they increasing? Why?

Question 4
Consider a consumer with utility function given by u(x1 , x2 ) = x1 x2 .
(i ) Find the demands for goods 1 and 2 when the consumer faces prices p1 and p2 , and income m.
(ii ) Are goods 1 and 2 normal goods? Why?
(iii ) Are goods 1 and 2 ordinary goods? Why?