Sally Consumes Two Goods, X and Y

question 29

Essay

Sally consumes two goods, X and Y. Her utility function is given by the expression
U(X,Y)= X^0.4Y^0.6 . The current market price of X is $20 per unit, while the market price of Y is $100 per unit. Sally's current income is $10,000.
a)Calculate Sally's demand for X as a function of prices and incomes. Is good X normal?
b)How much X and Y will Sally demand at current market prices? What will Sally's utility be with that consumption?
c)Find the income elasticity and the price elasticity of demand for X.

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