1A) For a demand function u (x, y) = xy, show the demand functions for good...

1A) For a demand function u (x, y) = xy, show the demand functions for good x and good y. (Remember that MRS = (du/dx) / (du/dy) = px / py in the point of interest, the tangency point of budget line and indifference curve. The budget condition is given by pxx + pyy = m).

1B) Calculate the own-price elasticities as well as the income elasticities of demand for goods x and y based on your results in A)

1C) Follow the same steps as in A) for u (x, y) = x1/3 y2/3.

1D) Show the individual’s demand for good x and good y that follows from their utility function u (x, y) = x1/2 y1/2.

1E) For the values in C), assume income m = 30, px = 2, py = 1. How many units of each good does the individual consume? Calculate the same using the function from D).

Expert Solution

Rahul Sunny answered 2 years ago

For a demand function u (x, y) = xy, show the demand functions for good x...

For a demand function u (x, y) = xy, show the demand functions for good x and good y. (Remember that MRS = (du/dx) / (du/dy) = px / py in the point of interest, the tangency point of budget line and indifference curve. The budget condition is given by pxx + pyy = m) for u (x, y) = x1/3 y2/3

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1. Suppose Mike’s utility function is u(x,y)=2lnx +lny. a. Derive the demand functions. b. Is y a Normal good? c. Is x an ordinary good? d. Assume the price of x is initially 1 dollar, and the price of y is also 1 dollar. Given that income is 9, if the price of x doubles to 2 dollars, decompose the change in consumption of x into substitution effect and income effect. Illustrate your answer with a graph. e. Now, given...

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