Question
1) Consider a consumer who purchases two goods, x and y . The consumer's utility function is U ( x , y )= xy^ 2.
1) Consider a consumer who purchases two goods,xandy. The consumer's utility function isU(x,y)=xy^2. The prices are given byPxandPy, and the consumer's income isI.
2)Assume initiallyI=$30 ,Px=$1 , andPy=$1 . Now assume the price ofyincreases toPy=$8.
3)Compute the decomposition bundleB. Identify the substitution effect and income effect.
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Macroeconomics A European Perspective
Authors: Olivier Blanchard, Alessia Amighini, Francesco Giavazzi
4th Edition
1292360895, 9781292360898
