1: Utility U(x, y) = x^0.5 y^0.5 is given by Income I = 1000. Price of...

1: Utility U(x, y) = x^0.5 y^0.5 is given by Income I = 1000. Price of x is px =10 and price of y is py = 20

1 The price of x increases from p0x = 10 to p1x = 20. Calculate the 1. New Demand for x and y

3 Obtain the demand for x and y at income I1 and NEW prices p1x = 20, py =20

4 Obtain the substitution and income effect

5 What is the income I2 needed to obtain new utility U1 @ OLD prices p0x =10, py = 20?

6Calculate the Compensating Variation and Equivalent Variation

7 Draw a diagram showing the income and substitution effect

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

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