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Pip derives all of his utility from consuming only chocolate bars. He spends his entire weekly allowance of 10 on chocolate bars. Suppose the price
Pip derives all of his utility from consuming only chocolate bars. He spends his entire weekly allowance of 10 on chocolate bars. Suppose the price of chocolate bars rises from 1 to 2. Compute Pip's Compensating Variation (the amount of extra income needed after the price change to return Pip to the original utility level) and Equivalent Variation (the maximum amount of money that Pip would pay to prevent the price increase).
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