Question 2

Suppose a consumer has a utility function, (, ) = 1/21/2

. Assume > 0, and = $1

A. Find the compensated demand functions

B. Find the expenditure function for this consumer.

C. Suppose there is a proposal to reduce the price of good x from = $2 to

= $1 per unit. If the new utility enjoyed by the consumer after the price

change is U = 100, what is the equivalent variation of this price change?

Question 2 Suppose a consumer has a utility function, u(x, y) = x1/2y1/2. Assume PX > 0, and Py = $1 A. Find the compensated demand functions B. Find the expenditure function for this consumer. C. Suppose there is a proposal to reduce the price of good x from Px = $2 to Px = $1 per unit. If the new utility enjoyed by the consumer after the price change is U = 100, what is the equivalent variation of this price change