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QUESTION

Let a consumer have an income of m and face prices p = (p1, p2).

 Let a consumer have an income of m and face prices p = (p1, p2). For each of the following preferences, derive the Hicksian and Slutsky income and substitution effects of a price change of good 1 from p1 to p 0 1 , following the procedure given in class.

(a) u(x1, x2) = x α 1 x 1−α 2 .

(b) u(x1, x2) = min{x1, x2}.

(Note that since this utility function is not differentiable, the demand functions cannot be obtained by the Lagrange method. But, you can solve for them with the help of a graph.) 

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