Consider the following utility function U(X,Y) = X^1/4Y^3/4 Initially PX = 2 PY = 4 I...

Consider the following utility function U(X,Y) = X^1/4Y^3/4

Initially
PX = 2

PY = 4

I = 120
Suppose the price of X changes to PX = 3. Perform a decomposition and fill in the table

	X	Y
Substitution Effect
Income Effect
Total Effect

Solutions

Expert Solution

here the compensatory income I' is :(3×11.061)+(4×24.89)=132.743. This income is obtained by putting the values of good x and good y that the consumer would have bought at unchanged real income after the rise in price of good x. This compensatory income is actually the income that should be given to the consumer so that he can cope up with the rise in price or so that he can keep his utility fixed even after the price rise.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Consider the following utility function: u(x, y) = x2/3y1/3. Suppose that Px = 4, Py =...

Consider the following utility function: u(x, y) = x2/3y1/3. Suppose that Px = 4, Py = 2 and the income is I = 30. Derive the optimal choice for both goods.

Consider a quasi-linear utility function, U(X, Y) = X1/2 + Y, with some Px and Py...

Consider a quasi-linear utility function, U(X, Y) = X1/2 + Y, with some Px and Py a. For an interior solution, solve step-by-step for the demand functions of X* and Y*. b. Under what circumstance would the optimal consumption involve a corner solution for the utility maximization problem? c. (Now, let Py = $1, I = 24, and suppose that Px increases from $0.5 to $2. Find the Compensating Variation (CV) and the Equivalence Variation (EV). In this example, how...

a consumer has a utility function u = x^1/2y^1/2. prices are px = 2 and py...

a consumer has a utility function u = x^1/2y^1/2. prices are px = 2 and py = 3. she maximizes utility purchasing 6 units of good x. her income is equal to m = ________

assume that U(x, y) = xy, Px = 1, Py = 4 and B = 120....

assume that U(x, y) = xy, Px = 1, Py = 4 and B = 120. Using the Bordered Hessian matrix, verify that the second-order conditions for a maximum are satisfied. Show steps.

each of the following situations, 3. U(X,Y) = X1/2Y1/2 M = $36; PY = $1; PX...

each of the following situations, 3. U(X,Y) = X1/2Y1/2 M = $36; PY = $1; PX is initially = $1; the price of Good X increases to PX = $9. 4. U(X,Y) = X1/2Y1/2 M = $64; PY = $1; PX is initially = $16; the price of Good X decreases to PX = $1. 1）calculate the change in the quantity demanded of Good X that is due to the Substitution Effect 2）calculate the change in the quantity demanded of...

Given the utility function U ( X , Y ) = X 1 3 Y 2...

Given the utility function U ( X , Y ) = X 1 3 Y 2 3, find the absolute value of the MRS when X=10 and Y=24. Round your answer to 4 decimal places.

"Suppose a consumer has preferences represented by the utility function U(X,Y) = X(^2)Y Suppose Py =...

"Suppose a consumer has preferences represented by the utility function U(X,Y) = X(^2)Y Suppose Py = 1, and the consumer has $360 to spend. Draw the Price-Consumption Curve for this consumer for income values Px =1, Px = 2, and Px = 5. Your graph should accurately draw the budget constraints for each income level and specifically label the bundles that the consumer chooses for each income level. Also for each bundle that the consumer chooses, draw the indifference curve...

Consider the following utility function: U = 100X0.10 Y 0.75. A consumer faces prices of Px...

Consider the following utility function: U = 100X0.10 Y 0.75. A consumer faces prices of Px = $5 and Py =$5. Assuming that graphically good X is on the horizontal axis and good Y is on the vertical axis, suppose the consumer chooses to consume 7 units of good X and 15 units of good Y. Then the marginal rate of substitution6 is equal to: MRS = . (Enter your response rounded to two decimal places. Do not forget to...

Let assume that a consumer has a utility function u(x, y) = xy, and px =...

Let assume that a consumer has a utility function u(x, y) = xy, and px = 1 dollar, py = 2 dollars and budget=50. Derive the followings. (3 points each) 1) Marshallian demands of x and y 2) Hicksian demands of x and y 3) Indirect utility function 4) Expenditure function 5) Engel curve

Consider a consumer with the utility function U(X, Y) = X^2 Y^2 . This consumer has...

Consider a consumer with the utility function U(X, Y) = X^2 Y^2 . This consumer has an income denoted by I which is devoted to goods X and Y. The prices of goods X and Y are denoted PX and PY. a. Find the consumer’s marginal utility of X (MUX) and marginal utility of Y (MUY). b. Find the consumer’s marginal rate of substitution (MRS). c. Derive the consumer's demand equations for both goods as functions of the variables PX,...

Subjects