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  3. 3 problems 1 2 use ces utility functions e functions...

Question: 3 problems 1 2 use ces utility functions e functions...

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3) Problems 1, 2 use CES utility functions; .e functions of the form a(z, y) = J + In Problem 1, δ =ー2; in Problem 2, δ +1/2. If you have worked out Problems 1, 2 you might guess that the key to the question is the sign of the exponent δ (which is also the sign of the utility function). So if a consumer has CES utility function a(z, y) = T + (assume < 1, 0) show that the consumer finds (a) commodities r, y are substitutes if >0 (b) comumodities z, y are complemients if δ < 0 When 0 the formal expression for utility doesnt make sense but that is usually viewed as Cobb-Douglas with equal exponents, in which case x, y are neither substitutes nor complements.)

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