CONSUMERS 1

Harry’s preferences are given by the following utility function:

U ( x, y =
) x + ln y
a. What is the demand for x and y, assuming that I ≥ px .

b. What is the demand for x and y assuming that 0 ≤ I < px . Explain precisely!

c. Draw the Engel curves, both for x and for y, with px = 2 and py = 1

d. Give the expenditure function and compensated demand (in the order of your choice) for
U ≥ ln px − ln py .

e. Is y a gross substitute for x if I ≥ px ? Is x a gross substitute for y if I ≥ px ?

f. Is y a net substitute for x if I ≥ px ? Is x a net substitute for y if I ≥ px ?

g. Give the expenditure function and compensated demand (in the order of your choice) for
U < ln px − ln py .

CONSUMERS 2

Harry’s preferences are given by the following utility function:

U ( x,=
y) x + y

a. Is this utility function homothetic?

b. Give the demand for x and y.

c. Give the compensated demand for x and y and the expenditure function by solving the
dual problem.