please only do: if you can teach explain steps A consumer has utility u(x₁, x2) = x₁ for two goods. The government subsidizes half of thecost of the purchase of good 1 up to a maximum of 2 units. Thus if the consumer chooses thebundle (21,22), she pays p₁/2 per unit up to 2₁ = 2, and p₁ per unit thereafter. In particular,if she consumes more than two units, she receives a total subsidy of p₁. Assume throughoutthis question that w > p₁. Recall that the Marshallian demand for this utility function (inthe absence of any subsidy) isx(p, w)w 2w3p13p2(a) Carefully sketch the budget set. Be sure to identify relevant points of intersection withthe axes.Solution: The budget set consists of all convex combinations of the points (0,0), (0, w/p2),(2, (w - P₁)/p2), and (1+w/p₁,0). The upper-right boundary of this region consists oftwo line segments meeting at a kink, with the segment to the left of the kink being flatterthan the one to the right.(b) Find the utility-maximizing bundle as a function of prices (p₁, p2) and wealth w.Solution: The "budget line" consists of two parts: below x₁ = 2, it is the same lineas for wealth w and prices (p1/2, p2); above x₁ = 2, it is the same line as for wealthw+p₁ and prices (p1, p2). The corresponding Marshallian demands are (2w/3p1, 2w/3p2)and ((w + P₁)/3p1,2(w +P₁)/3p2). Thus if 2w/3p₁ < 2, the first is the demand; if(w + p₁)/3p1 > 2, the second is; otherwise, the demand is (2, (w - P₁)/p2).

Given information Utility function U=X1X22 If a consumer buys 2 units or less than 2 units then…

A consumer has utility u(x₁, x2) = x₁ for two goods. The government subsidizes half of the cost of the purchase of good 1 up to a maximum of 2 units. Thus if the consumer chooses the bundle (1, 2), she pays p₁/2 per unit up to a₁ = 2, and p₁ per unit thereafter. In particular, if she consumes more than two units, she receives a total subsidy of p₁. Assume throughout this question that w > p₁. Recall that the Marshallian demand for this utility function (in the absence of any subsidy) is x(p, w) = w 2w 3p1 3p2 (a) Carefully sketch the budget set. Be sure to identify relevant points of intersection with

A consumer has utility u(x₁, x2) = x₁ for two goods. The government subsidizes half of the cost of the purchase of good 1 up to a maximum of 2 units. Thus if the consumer chooses the bundle (1, 2), she pays p₁/2 per unit up to a₁ = 2, and p₁ per unit thereafter. In particular, if she consumes more than two units, she receives a total subsidy of p₁. Assume throughout this question that w > p₁. Recall that the Marshallian demand for this utility function (in the absence of any subsidy) is x(p, w) = w 2w 3p1 3p2 (a) Carefully sketch the budget set. Be sure to identify relevant points of intersection with

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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