March 29, 2017

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Consider a consumer who has an experienced utility function given by UEU(x,m)=2sqrtx+m. Let q denote the market price of good x, and assume that it remains fixed throughout the problem.

The company selling the good x starts an advertisement campagin that has the following effect on the consumer: he makes decisions as if maximizing a decision utility function given by UDU(x,m)=4sqrtx+m.

QUESTION. Write down the expression for the difference between the consumer demand and his optimal level of consumption (as a function of q).

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