A consumes two goods, x and y. A ’s utility function is given by u(x, y)...

A consumes two goods, x and y. A ’s utility function is given by u(x, y) = x 1/2y 1/2

The price of x is p and the price of y is 1. A has an income of M.

(a) Derive A ’s demand functions for x and y.

(b) Suppose M = 72 and p falls from 9 to 4. Calculate the income and substitution effects of the price change.

(d) Calculate the price elasticity of demand for x.

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Expert Solution

Rahul Sunny answered 1 year ago

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