Larry visits Helsinki where he can consume only two goods, x and y. He has a budget of M and faces prices p_x
and p_yrespectively. His utility function is given by: U = A(xy)^1/2where A is a constant. i)Derive an equation for Larry's demand curve for x. Now let M = 120, px = 3 and py = 1. ii)Calculate his cross elasticity of demand for x with respect to the price of y and calculate his income elasticity of demand for x.
iii)Larry is invited to join the Hulla Hukka Club, for dues of $40 per week, which will allow him to purchase x
at a price of 1. Will Larry join the Hulla Hukka Club?
iv)What is the largest due that Larry would be willing to pay to join the Hulla Hukka Club?

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The Answer of Larry visits Helsinki where he can consume only two goods, x and y. He has a budget of M and faces prices p_x and p_yrespectively. His utility function is given by: U = A(xy)^1/2where A is a constant. i)Derive an equation for Larry's demand curve for x. Now let M = 120, px = 3 and py = 1. ii)Calculate his cross elasticity of demand for x with respect to the price of y and calculate his income elasticity of demand for x. iii)Larry is invited to join the Hulla Hukka Club, for dues of $40 per week, which will allow him to purchase x at a price of 1. Will Larry join the Hulla Hukka Club? iv)What is the largest due that Larry would be willing to pay to join the Hulla Hukka Club?

Larry Visits Helsinki Where He Can Consume Only Two Goods