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Suppose that initial prices and income generate budget line Bo. A reduction in the price of X causes the budget line to pivot from

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Suppose that initial prices and income generate budget line Bo. A reduction in the price of X causes the budget line to pivot from Bo to B1. 1. On the diagram, show the income and substitution effect. 2. On the diagram, show the Compensating Variation (CV) of the price change. 3. In words explains what the CV measures. 4. On the diagram show the Equivalent Variation (EV) of the price change. 5. In words, explain what the EV measures. $Y U1 B1 Uo X Bo

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