Question
2. Suzie purchases two goods, food (x) and clothing (y). She has the utility function U(x, y) = xy. Now suppose that she has an
2. Suzie purchases two goods, food (x) and clothing (y). She has the utility function U(x, y) = xy. Now suppose that she has an income of $72 per week and that the price of clothing is Py = $1 per unit. Suppose that the price of food is initially Px = $9 and that the price subsequently increases to
Px = $12 per unit. Find the numerical values of the compensating variation and the equivalent variation due to the increase in the price of food, and graph the results.
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Microeconomics
Authors: Douglas Bernheim, Michael Whinston
2nd edition
73375853, 978-0073375854
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