A consumer has preferences over the single good, x and "all other goods”, m represented by the utility function, u(x, m) = ln(x) + m

Economics Nov 25, 2020

A consumer has preferences over the single good, x and "all other goods”, m represented by the utility function, u(x, m) = ln(x) + m. Let the price of x be p, the price of m be 1 and let income be y (a) Derive the Marshallian demands for x and m. (b) Derive the indirect utility function, v(p, y). (c) Use the Slutsky equation to decompose the effect of an own-price change on the demand for x into an income and substitution effect. Interpret you result briefly.

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