2. Answer all parts (a) (c) of this question.(a)Consider an agent whose preferences over any couple (x1, x2), where 2₁ ER+and x2 € R+, e.g., apples and oranges, is such that she prefers the bundle that is closest tohaving the same number of apples and oranges. Write a utility function u: R² → R+ whichrepresent these preferences.A politician remarks "Our recent increases in the wage rates of teachers has been a total suc-cess! The shortage of teachers has been reduced drastically. Another, similar wage increaseshould eliminate this shortage entirely"(b)Explain and illustrate in a diagram what is meant by "income effects" and"substitution effects" of a wage rate change.(c)Explain and illustrate how you would model the labour supply decision of apotential teacher. Do you agree that the wage increase will increase the labour supply in thiscase? Carefully outline the assumptions underlying your argument.

The utility is the total satisfaction derived by the consumption of goods. U=f(X,Y) It denotes that…

(a) Consider an agent whose preferences over any couple (1, 2), where x₁ € R+ and 2 € R+, e.g., apples and oranges, is such that she prefers the bundle that is closest to having the same number of apples and oranges. Write a utility function u: R2 → R+ which represent these preferences.

(a) Consider an agent whose preferences over any couple (1, 2), where x₁ € R+ and 2 € R+, e.g., apples and oranges, is such that she prefers the bundle that is closest to having the same number of apples and oranges. Write a utility function u: R2 → R+ which represent these preferences.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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