Question: Suppose the utility function for an individual consuming goods x and y is: U (x, y) = x + 4y Individual income is given by

Suppose the utility function for an individual consuming goods x and y is: U (x, y) = x + 4y

Individual income is given by m. The price of good x is px and the price of good y is py.

  1. Find the Marshallian (uncompensated) demand function for each good.
  2. Determine the Indirect Utility Function and the Expenditure Function.
  3. If the price of y doubled, how much would m have to increase so that the individual was equally well off after the price change as compared to before the price change?
  4. Now suppose there are two individuals with the same preferences as above except y is a pure public good. If the marginal cost of producing a unit of the public good y is 2, what is the efficient amount of pure public good provision? Explain whether or not this efficient amount will be provided if individuals choose how much y to purchase (you can assume that py = 2 and px = 1 in your answer.)

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