Question:
Suppose the utility function for goods x and y is given by:
Utility = U(x, y) = xy + 0.4y
a) Calculate the uncompensated (Marshallian) demand functions for x and y and describe how the demand curves for x and y are shifted by changes in income or the price of the other good. Show all working.
b) Calculate the expenditure function for x and y.
c) Use the expenditure function calculated in part (b) to compute the compensated demand functions for goods x and y.
d) Describe how the compensated demand curves for x and y are shifted by changes in income or by changes in the price of the other good.