Question
5. The utility U ( x , y ) = xy and consumer has income $120. Initially, P x = 4 and P y =
5. The utility U(x, y) = xy and consumer has income $120. Initially, Px= 4 and Py= 1.
a). Calculate the income and substitution effects of a decrease in the price of food to $3.
b) Calculate the compensating variation of the price change.
c) Calculate the equivalent variation of the price change.
PLEASE SHOW ALL WORKING. THANK YOU!
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Economics
Authors: R. Glenn Hubbard
6th edition
978-0134797731, 134797736, 978-0134106243
