Question
Kunal's utility for goods x and y is given by U(X, Y) = a ln(X) + b ln(Y), where a > 0, b > 0,
Kunal's utility for goods x and y is given by U(X, Y) = a ln(X) + b ln(Y), where a > 0, b > 0, and ln(X) and ln(Y) represent the natural logarithm of X and Y respectively. His money income is M, and the prices of good X is PX, and price of good Y is PY. (a). Derive the demand functions for good X and good Y (in terms of income and price). Make sure to show the steps by which you arrive at the answer. (b). Are these two goods X and Y complements or substitutes? Explain your answer. (c). Are these two goods X and Y normal or inferior? Explain your answer.
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