Demand Functions

[Tiffany]

For the free-response questions:

If the prices are given and you are asked to solve for number of goods a person will consume, is it necessary to solve out the demand functions in terms of x*(p1,p2,m) in order to receive full credit? For example, using a Cobb Douglas function, when I set MRS = p1/p2, I directly substitute the values of p1 and p2 to solve for x1* and x2*. Would I be marked down without them?

P.S. Sorry, I realize that this is a question that probably would have been better asked earlier. But if anyone sees this, your feedback will be very much appreciated. 

[Taylor Stoltzfus]

Hey Tiffany,

Although plugging in numbers early will generally give the correct answer, it is not a good habit to form. Whenever possible, you should try to get a general demand formula by not plugging in numbers until you have isolated X or Y (Ex: once you have X*=M/Px, then you have my permission to plug in numbers).

Why? 

Free response questions have multiple parts. In the first part he may ask you to calculated demand for a cobb-doug function. In the second part he may ask you if X is a complement for Y, or if X is a normal good. Later in the course, he may ask you about the own price elasticity of X. To answer all of these "extra" questions, you need the general demand formula.

I can't tell you if they would mark you down or not, but I strongly recommend against plugging in early.

Let me know if you have questions!