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{1 [11:20.2 a U:=15.3 o 2 1 L 12 1613_ 24 so 4046 00 mm -- Waived Imbada Touleecl WW Application: Recorded tracks and live
{1 [11:20.2 a" U:=15.3 o 2 1 L 12 1613_ 24 so 4046 00 mm -- Waived Imbada Touleecl WW Application: Recorded tracks and live music Utility function: U=q1"q" Budget constraint: Y = 30 = 0-5q1+q2 = .0101 +92% Optimal choice: Q1 =24.Q2 =13 Situation graphed above: Initial price of music tracks was p1 = 0.5. The price increased to p1 = 1 and the new optimal bundle is q1 = 12 and q2 = 18. 1. What is the compensating variation? a. Calculate the 5 number b. 0n the yaxis, use brackets to indicate which gap (between two budget constraints) illustrates the CV. c. Explain what it means in words. 2. What is the equivalent variation? a. Calculate the 5 number b. 0n the vaxis, use brackets to indicate which gap (between two budget constraints) illustrates the EV. c. Explain what it means in words. 3. Suppose instead the price of music tracks decreased to $0.25 from $0.5. Graph out the CV and EV and label them
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