Compute the corresponding compensating

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Reference no: EM1351763

Natasha's utility function is U = X2 Y, where U represents utility, X represents the quantity consumed of good X and Y represents the quantity consumed of goods Y. Her income is $100 and good Y cost $5. Suppose the price of good X falls from $5 to $2. Draw good X in the horizontal axis and good Y in the vertical axis.

a) Calculate the ordinary demands for goods X and Y. Illustrate your answers graphically.

b) Calculate the resulting Income Effect, Substitution Effect and Total Effect. Illustrate your answers graphically.

c) Compute the corresponding Compensating and Equivalent Variation. Illustrate your answers graphically.

d) Compute the compensating demands for goods X and Y. Illustrate your answers graphically.

Reference no: EM1351763

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