Assume you spend your entire income on two goods X & Y with prices given asPx & Py, respectively. Prices and income (I) are exogenous and positive. Giventhat U= X²Y?, derive the Hicksian demand function for good Y.Suppose that initially Px = 2, Py = 8, I = 96 and the Marshallian demand functionfor good Y is given by . Calculate the own price & income elasticities of demandfor good Y. Interpret your computed values and say something about the type ofgood.

“Since you have asked multiple questions, we will solve the first question for you. If you want any…

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 hat U= X²Y², derive the Hicksian demand function for good Y.

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 hat U= X²Y², derive the Hicksian demand function for good Y.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.4P

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

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= X²Y?, derive the Hicksian demand function for good Y.
Suppose that initially Px = 2, Py = 8, I = 96 and the Marshallian demand function
for good Y is given by . Calculate the own price & income elasticities of demand
for good Y. Interpret your computed values and say something about the type of
good.

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