Question: Esther consumes goods X and Y, and her utility function is U(X, Y) = XY + Y a. What is Esther's MRSXY? Do her preferences

Esther consumes goods X and Y, and her utility function is U(X, Y) = XY + Y
a. What is Esther's MRSXY? Do her preferences satisfy the declining MRS property?
b. Suppose her daily income is $20, the price of X is $4 per unit, and the price of Y is $1 per unit. What is her best choice? What is the (own) price elasticity of her demand for good Y starting with these prices and income? At what price for good Y is Esther's expenditure on good Y largest?
c. Suppose the price of good Y rises to $4 per unit. What is her new consumption bundle? Decompose the change in her purchases into income and substitution effects. What is Esther's compensating variation for the price change?

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a Esthers MRS XY YX 1 Her preferences satisfy the declining MRS property b When her daily income is 20 the price of X is 4 per unit and the price of Y is 1 per unit her best choice isX 2 Y 12 When her ... View full answer

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