Suzie has $\$ 50$ of income and a utility function given by $u=\sqrt{x_{1}}+\sqrt{x_{2}}$. The price of good $2, p_{2}$, is $\$ 2$.
a. First suppose $x_{1}=0$. How much of $x_{2}$ does Suzie have?
b. How much is Suzie willing to pay to acquire one unit of $x_{1}$ ?
c. Now suppose $x_{1}=1$. How much is Suzie willing to sell her one unit of $x_{1}$ ?
d. George faces the same prices and has the same income as Suzie, but his utility function is given by
e. Repeat part a.
f. Repeat part b.
g. Repeat part c.
h. What feature of the utility function results in $p^{W T P} \neq p^{W T A}$ ?

Question

Suzie has $\$ 50$ of income and a utility function given by $u=\sqrt{x_{1}}+\sqrt{x_{2}}$. The price of good $2, p_{2}$, is $\$ 2$.
a. First suppose $x_{1}=0$. How much of $x_{2}$ does Suzie have? 
b. How much is Suzie willing to pay to acquire one unit of $x_{1}$ ? 
c. Now suppose $x_{1}=1$. How much is Suzie willing to sell her one unit of $x_{1}$ ? 
d. George faces the same prices and has the same income as Suzie, but his utility function is given by 
e. Repeat part a.
f. Repeat part b.
g. Repeat part c.
h. What feature of the utility function results in $p^{W T P} \neq p^{W T A}$ ?

Quizplus · Accepted Answer

The Answer of Suzie has $\$ 50$ of income and a utility function given by $u=\sqrt{x_{1}}+\sqrt{x_{2}}$. The price of good $2, p_{2}$, is $\$ 2$.
a. First suppose $x_{1}=0$. How much of $x_{2}$ does Suzie have? 
b. How much is Suzie willing to pay to acquire one unit of $x_{1}$ ? 
c. Now suppose $x_{1}=1$. How much is Suzie willing to sell her one unit of $x_{1}$ ? 
d. George faces the same prices and has the same income as Suzie, but his utility function is given by 
e. Repeat part a.
f. Repeat part b.
g. Repeat part c.
h. What feature of the utility function results in $p^{W T P} \neq p^{W T A}$ ?

Suzie Has $50\$ 50$50 Of Income and a Utility Function Given By

Suzie Has $\$ 50$ Of Income and a Utility Function Given By