Suppose that a low income family has preferences for food and housing that can b

Question

Suppose that a low income family has preferences for food and housing that can be represented with the utility function

(undefined) (undefined) denote income, price of food and price of housing (normalized to one). Where a is greater than 0 and less than 1.

A) Show that the indirect utility function (or in other words, utility in an

optimal consumption) is (undefined)

B) Compute the expenditure function (undefined) .

C) Using the expenditure function, compute the percentage change of income necessary to support the low income family's real income when the price of food doubles, triples and quadruples.

D) Derive the compensated demand for food.

Explanation / Answer

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