For the Cobb-Douglas utility function with two goods,the sum of the own price elasticities of demand must be:

Question

Quizplus · Accepted Answer

For the Cobb-Douglas utility function with two goods, the own price elasticity of demand is calculated as the partial derivative of the utility function with respect to the price of the good, multiplied by the price of the good divided by the marginal utility of the good. The own price elasticity for good i is -αi. Therefore, the sum of the own price elasticities of demand for two goods is -α1 -α2, which is equal to -2 for a typical Cobb-Douglas utility function with α1 = α2 = 0.5. Therefore, the correct answer is option C, -2.

For the Cobb-Douglas Utility Function with Two Goods,the Sum of the Own