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Show that goods X and Y are normal goods and explain whether either good is a substitute for the other. Assume that px = 10, py = 5 and m = 100. Suppose that px increases to p = 15, how much of the change in demand for Good X is via the substitution effect and how much is via the income effect? Note: You may assume an interior solution (i.e. x > 0 and y > 0).

Show that goods X and Y are normal goods and explain whether either good is a substitute for the other. Assume that px = 10, py = 5 and m = 100. Suppose that px increases to p = 15, how much of the change in demand for Good X is via the substitution effect and how much is via the income effect? Note: You may assume an interior solution (i.e. x > 0 and y > 0).

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.2P
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1. A consumer has a utility function defined over two goods X and Y. Let the quantity of Good X be x ≥ 0 and the quantity of Good Y be y ≥ 0. The utility function is given below: u(x, y) = xy + 2y. Assume that the consumer has income m and that prices are px and Py.
Transcribed Image Text:1. A consumer has a utility function defined over two goods X and Y. Let the quantity of Good X be x ≥ 0 and the quantity of Good Y be y ≥ 0. The utility function is given below: u(x, y) = xy + 2y. Assume that the consumer has income m and that prices are px and Py.
(d) Show that goods X and Y are normal goods and explain whether either good is a substitute for the other. (e) Assume that px 10, py = 5 and m = 100. Suppose that px increases to px how much of the change in demand for Good X is via the substitution effect and how much is via the income effect? Note: You may assume an interior solution (i.e. x > 0 and y > 0). = - 15,
Transcribed Image Text:(d) Show that goods X and Y are normal goods and explain whether either good is a substitute for the other. (e) Assume that px 10, py = 5 and m = 100. Suppose that px increases to px how much of the change in demand for Good X is via the substitution effect and how much is via the income effect? Note: You may assume an interior solution (i.e. x > 0 and y > 0). = - 15,
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