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