Consider an individual whose utility function is denoted by: U=x^0.7y^0.3 who faces prices Px and Py with a budget of M.

NOTE: The individual's marginal utilities are: MUx=0.7x^-0.3y^0.3, MUy=0.3x^0.7y^-0.7.

A)Derive the individual's demand functions for x and y. (10 marks)

B)Suppose the individual's budget increases from M to M' (for simplicity, assume M' is twice as much as M, so M'=2M). How many additional resources will the individual devote to consumption of x? How do you know? (5 marks)

C)If a governmental authority wanted to increase the amount of good x consumed by individuals (assume all individuals have a utility function as given by the individual), how could this be achieved? State your answer in reference to the demand functions derived in A). (5 marks)

D)Are goods x and y normal goods? Is good x a substitute or compliment to y? How do you know? (5 marks)