Answer to Question #103816 in Microeconomics for adv micro1.26

Question

A consumer of two goods faces positive prices and has a positive income. His utility function is
u(x1, x2) = x1.
Derive the Marshallian demand functions.

Answer 1

Marshallian demand function specifies what the consumer would buy in each price and income or wealth situation, assuming it perfectly solves the utility maximization problem.

The utility function in the linear form is only weakly convex, and indeed the demand is not unique: when p1 = p2, the consumer may divide his income in arbitrary ratios between product types 1 and 2 and get the same utility.