a) U = xy b) U = (xy)^1/3 c) U = min(x,y/2) d) U = 2x...

a) U = xy b) U = (xy)^1/3 c) U = min(x,y/2) d) U = 2x + 3y e) U = x^2 y^2 + xy

4. All functions except c) are differentiable. Do these functions exhibit diminishing marginal utility? Are their Marshallian demands downward sloping? What can you infer about the necessity of diminishing marginal utility for downward- sloping demands?

Expert Solution

Yes, Marshallian demands of a,b and e are downward sloping as the marginal rate of substitution is decreasing in all of these demand functions and d also exhibits downwards sloping demand. The diminishing marginal utility is neither necessary nor required for the downward sloping demand. There are income effect and price effect also which influences demand of an individual. Demand curve of substitute goods is also downward sloping but there MRS is constant. so, for part d also demand is downward sloping. For utility function c the MRS is zero as they are complementary goods and they are consumed in a fixed ratio. But their demand curve is also downward sloping.

In case of related goods, demand is affected by the change in the price of related goods.

Rahul Sunny answered 1 year ago

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Question

a) U = xy b) U = (xy)^1/3 c) U = min(x,y/2) d) U = 2x...

Solutions

Expert Solution

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