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2. Seimone consumes two goods, r and y. Her expenditure function is given by: E = (3pz + Py)U. (2) Initially, when pr = 1
2. Seimone consumes two goods, r and y. Her expenditure function is given by: E = (3pz + Py)U. (2) Initially, when pr = 1 and py = 1, Seimone consumes 15 units of good r. (a) Use the information provided to show that Seimone's income is 20. (5 marks) (b) Suppose the price of good a increases to 3. Decompose the change in demand for good r into an income and a substitution effect. (5 marks) (c) Use equivalent variation (EV) to measure the welfare change associated with the price increase
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