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18. [G] To find the Income/Substitution effects, graphically we find the point on the original indifference curve that is tangent to a line having the
18. [G] To find the Income/Substitution effects, graphically we find the point on the original indifference curve that is tangent to a line having the slope of the new budget line. We call this point (x1,x,") Analytically, we can find this point as well. Specifically, the solution to what two equations will give us (x1,x2" Hint: It's the two equations that are equivalent to the graphical approach of finding this point. I - Pnewx subs _ p,x,subs = 0: Un (xsubs subs pnew A. U2 (x] subs "rig = U(xx1 ); U. (xsubs subs pnew B. U(x1 071,x2 U2(*1 -subsy subs x1 pnew C. I -Pox hs _ px1 subs = 0: U. (subs subs, X2 Subsy pNEW D. U(X1 ,X1 ") x, subs . Un(xsubs ,subs) porig U2 (xpubs x Subs orig P E. None of the above system of equations will correctly solve for (x,subs, x,subs)
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