3. Suppose that Bob’s preferences can be represented by the utility function u(x, y) = 32x^0.5...

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3. Suppose that Bob’s preferences can be represented by the utility function u(x, y) = 32x^0.5...

3. Suppose that Bob’s preferences can be represented by the utility function u(x, y) = 32x^0.5 + y. The MUx = 16x^-0.5 and MUy = 1.

(a) Determine Bob’s demand functions for x and y.

(b)If the price of x is $8, and Bob’s income is $1000, how many x would Bob consume? How much income would be devoted to spending on y?

(c) Suppose that the price of x doubles to $16. Calculate the income and substitution effects.

(d)Is x a normal or inferior good? Is y a normal or inferior good?

(e) Calculate the equivalent variation, compensating variation, and change in CS associated with the price change.

business economics

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