1. Assume you spend your entire incomc on two goods X & Y with prices given as Px & Py, respectively. Prices and incomec (1) are exogenous and positive. Given that U =X² + Y', derive the Marshallian demand function for good Y and evaluate the type of good.
1. Assume you spend your entire incomc on two goods X & Y with prices given as Px & Py, respectively. Prices and incomec (1) are exogenous and positive. Given that U =X² + Y', derive the Marshallian demand function for good Y and evaluate the type of good.
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.5P
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Hello! I just want to ask for help whether the answers in the given pictures are correct. If it's not, please help me recheck and resolve it.
Please refer to the given pictures below for the answers and questions. Read the instructions and directions very carefully.
After verifying the given answers shown in the subsequent picture, PLEASE ANSWER NO.2 — THE SECOND QUESTION.
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![Utility function :U = x2 + y2
Price of X = Px ,
Price of Y = Py
Marshallian demand functions derived by the consumption point where marginal rate of substitution is equal to the price ratio.
->
Step 2
MRS = MU(X) /MU(Y)
MU(X) = 2X , MU(Y) = 2Y
MRS = X/Y
Price ratio = Px/Py
X/Y = Px/Py
Taking value of X from this condition and putting into budget constraint :
Px *X + Py*Y =M
PX (Y*Px/Py) + Py *Y = M
Y* (Px2/Py + Py) = M
Y* = M /[ (Px2/Py + Py)] (Marshallian demand for Y )](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb47949da-aa15-4c6d-8c2d-107d56610ed9%2Fd6495864-8261-4170-8a8b-a27089e19ac2%2Fd34ma5d_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Utility function :U = x2 + y2
Price of X = Px ,
Price of Y = Py
Marshallian demand functions derived by the consumption point where marginal rate of substitution is equal to the price ratio.
->
Step 2
MRS = MU(X) /MU(Y)
MU(X) = 2X , MU(Y) = 2Y
MRS = X/Y
Price ratio = Px/Py
X/Y = Px/Py
Taking value of X from this condition and putting into budget constraint :
Px *X + Py*Y =M
PX (Y*Px/Py) + Py *Y = M
Y* (Px2/Py + Py) = M
Y* = M /[ (Px2/Py + Py)] (Marshallian demand for Y )
Transcribed Image Text:1. Assume you spend your entire income on two goods X & Y with prices given as Px & Py,
respectively. Prices and income (1) are exogenous and positive. Given that U =X² + Y°,
derive the Marshallian demand function for good Y and evaluate the type of good.
2. Assume you spend your entire income on two goods X & Y with prices given as Px & Py,
respectively. Prices and income (I) are exogenous and positive. Given that U= X'Y',
derive the Hicksian demand function for good Y.
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