ECON6001/6701 Microeconomic Analysis 1 Problem Set 3
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Problem Set 3
ECON6001/6701 Microeconomic Analysis 1
Exercise 1. Consider the following utility functions:
Derive the a) Marshallian Demand, b) Indirect Utility function, and where appropriate, verify Roy's identity.
Exercise. The following two functions were estimated by observing a consumers purchases for her consumption of three goods at various income levels y (sufficiently high) and prices p = (p1 ; p2 ; p3).
The Greek letters are (as yet undetermined) constants.
1) If this is a utility maximizing locally non-satiated consumer, what must be the demand for good 3?
2) Are these functions homogeneous of degree zero in income and prices?
3) What further restrictions do we need on β ; and δ to conclude that the above functions are generated by a utility maximizing consumer?
Hint: Lookup Theorem 1 on (See Lec 3 Slides!) You have already verified two of the required three in the previous parts. Also remember, eventhough there are 3 goods here, the demand for good 3 is not independently given, so, for all purposes it is a 2 good economy.
2023-08-19