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.

Economics

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