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Horace has the following utility function over two goods, x and y U(x, y)xy Let Y denote Horace's total income and P. and P, denote the prices of x and y, respectively

a. Derive the Horace's Marshallian (ordinary) demand functions for x and y. Do these demand functions satisfy the law of demand? Why or why not? b. Solve for the Horace's Hicksian demand functions for x and y.
b. Compute the substitution effect associated with an increase in the price of the x (ie. take the partial derivative of the Hicksian demand function for x with respect to the price of x). Is it positive or negative?
c. Write down the Horace's expenditure function E(P, P, U). Use Shephard's Lemma

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Horace has the following utility function over two goods, x and y U(x, y)xy Let Y denote Horace's to...

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