Question
Consider an individual making choices over two goods, x and y with initial prices px=5 and py= 2, with income I= 100: a) If the
Consider an individual making choices over two goods, x and y with initial prices px=5 and py= 2, with income I= 100:
a) If the individual's preferences can be represented by the utility function u = 4x+ 2y; find the income, substitution and total effects of a decrease in the price of x to px= 3.
b) If the individual's preferences can be represented by the utility function u = min(4x,2y); find the income, substitution and total effects of a decrease in the price of x to px= 3.
c) If the individual’s preferences can be represented by the utility function u= 4xy, and the income, substitution and total effects of a decrease in the price of x to px= 4.
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a Utility function u 4x 2y Income effect The decrease in the price of x from px5 to px3 increases the individuals purchasing power allowing them to bu...Get Instant Access to Expert-Tailored Solutions
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