Question: David has a quasi-linear utility function of the form U(x, y) = x + y, with associated marginal utility functions MUx = 1/(2x) and MUy

David has a quasi-linear utility function of the form U(x, y) = √x + y, with associated marginal utility functions MUx = 1/(2√x) and MUy = 1.
a) Derive David's demand curve for x as a function of the prices, Px and Py. Verify that the demand for x is independent of the level of income at an interior optimum.
b) Derive David's demand curve for y. Is y a normal good? What happens to the demand for y as Px increases?

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a Denoting the level of income by I the budget constraint implies that and the tangency ... View full answer

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