2. Suppose Bernadette has a utility function resulting in an MRS = Y / X (from U = vXY) and she has an income of $80 (i.e. M = 80). Suppose she faces the following prices, Px = 6 and Py = 5. If the price of good Y goes up to Py = 6, while everything else remains the same, find Bernadette's equivalent variation (EV). Solution: At the initial equilibrium, we have the following consumer equilibrium conditions: Y = 6 X UT 6X + 5Y = 80 Solving for our consumer's initial equilibrium X = 6.667 Y= 8 U = VXY = V53.333 = 7.303 (denoted as U1)