# Question: jack consumes two goods x and y jacks utility function...

###### Question details

Jack consumes two goods, *x *and *y*. Jack’s utility function is given by

*u*(*x*, *y*) = *x^*1/2 * *y^*1/2

The price of *x *is *P *and the price of *y *is 1. Jack has an income of *M*.

(a) Derive Jack’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.

(c) Calculate the compensating variation of the price change.

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