PROBLEM 2 Theory of Demand Randy chooses between two goods, x and y , with prices p x and p y , respectively He has an income I and his preferences are represented by the utility function U (x, y) x y 1 Assuming that an interior solution exists to the constrained utility maximization problem, derive Randy's Marshallian demand function for each of the two goods Are both goods normal Explain 2 Find the indirect utility function, V (p x , p y , I) 3 Derive Randy's Hicksian demand function for each of the two goods and the expenditure function Compare the Marshallian demand for good x a nd the Hicksian demand for good x Are these different functions If so, why If not, why not 4 Suppose that I 100, p x 1 and p y 2 How much of good x and good y will Randy optimally choose

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PROBLEM 2  Theory of Demand Randy chooses between two goods, x and y , with prices p x and p y , respectively  He has an income I and his preferences are represented by the utility function U (x, y)  x   y  1  Assuming that an interior solution exists to the constrained utility maximization problem, derive Randy's Marshallian demand function for each of the two goods  Are both goods normal  Explain 2  Find the indirect utility function, V (p x , p y , I)   3  Derive Randy's Hicksian demand function for each of the two goods and the expenditure function  Compare the Marshallian demand for good x a nd the Hicksian demand for good x   Are these different functions  If so, why  If not, why not  4  Suppose that I   100, p x   1 and p y   2   How much of good x and good y will Randy optimally choose

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PROBLEM 2: Theory of Demand Randy chooses between two goods, x and y , with prices p x and p y , respectively. He has

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