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E500 Fall 2015 The homework is due on Wednesday, September 30. Each questions is worth 0.8 points. No partial credits. Question 1 Suppose utility is...
Consider the utility function given byu(x1, x2) = −1/x1−1/x2.(a) Determine the Walrasian demand functions for goods 1 and 2 by using theequation of the income offer curve and the equation of the budget line.(b) Determine the Hicksean demand functions for goods 1 and 2 by using the equationof the income offer curve and the equation of the indifference curves.(c) Determine the expenditure function using (b).(d) Determine the indirect utility function using (a) and the utility function.(e) Determine the elasticity of substitution.(f) Determine the deadweight loss of taxation using the example from the class onWednesday, and compare the result to those for Cobb Douglas and the CESwith α = ρ = 0.5 that we did in class. Why is the deadweight smaller?
