Question
In: Economics
An individual has the utility function u = min (x, y). His income is $ 12....
An individual has the utility function u = min (x, y). His
income is $ 12.
Initially, the prices were px = 4 and py = 1, and the individual
consumed the basket x = y = 2.4.
Then, px increases to $ 6 (py does not change), and the individual
now consumes the basket
x = y = 1.71.
a) Calculate the compensatory variation of this price change.
b) Calculate the equivalent variation of this price change.
c) On the same graph, illustrate the initial basket, the final
basket, the compensatory variation and the equivalent
variation.
Solutions
u
Rahul Sunny answered 1 year agoRelated Solutions
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y) = −4(x − 5.5)^2 − 2(y − 3.5)^2
Further assume that the price of good x, px = $6, the price of
good y, py = $8, and the individual has an income m = $65
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