Lewis has preferences given by the Cobb-Douglas utility function U(q1,q2 ) = q1aq21-a, where a > 0. Show that Lewis's total amount spent on each good, does not change with the prices
What will be an ideal response?
The demand equations are
q1 = aY/p1 and q2 = (1-a)Y/p2
The total expenditure on q1 is p1q1 = aY and the total expenditure on q2 is p2q2 = (1-a)Y. Thus, the total expenditures are not a function of the price.
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We need to study a model in which real and nominal variables interact in order to understand how the economy works
a) in the short run but not the long run. b) without regards to any time period, whether the short run or the long run. c) in both the short run and the long run. d) in the long run but not the short run.
The "law of demand" refers to the fact that, other things remaining the same, when the price of a good rises,
A) the demand curve shifts rightward. B) the demand curve shifts leftward. C) there is a movement down along the demand curve to a larger quantity demanded. D) there is a movement up along the demand curve to a smaller quantity demanded. E) the demand curve shifts rightward and there is a movement up along the demand curve to a smaller quantity demanded.