Question
U=f(x,y) = x^a * y^(1-a) With a budget constraint given by: px=4 and py=2 Knowing that the price of y increases to 6 dollars, a)
U=f(x,y) = x^a * y^(1-a)
With a budget constraint given by: px=4 and py=2 Knowing that the price of y increases to 6 dollars, a) Calculate the Marshallian demands before and after the price change. b) What is the value of the original utility before the price change? c) What is the amount of income that allows the consumer to maintain the level of utility initial after the price change? d) Calculate the claims compensated. e) Is it the Hicks or Slutsky method? f) Decompose the total effects into substitution and income effects for the two goods. And represent them graphically. g) Calculate the equivalent and compensating variations.
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