Answer to Question #145214 in Microeconomics for marita

Question

Suppose u(x1, x2) = x1x2. Are x1 and x2 gross complements or substitutes? Are they net
complements or substitutes?

Answer 1

x1 and x2 are gross complement because. Good X1 is a gross complement for good x2 if an increase in the price of X1causes a decrease in demand for x2. Also,if X1 and x2 are net substitutes because demand for X1 increases when the price of x2 increases and the utility derived from the substitute remains constant