3. A consumer's utility function is given by U(x, y) = min{x,y}. Initially px prices are pz = 1 and py = 1. The consumer has income 100. a) Determine the optimal consumption bundle (x*,y*). Now suppose that the price of a decreases to 0.5 b) Determine the income effect and the substitution effect corresponding to the price change. c) Determine the compensating variation (CV) of the price change
3. A consumer's utility function is given by U(x, y) = min{x,y}. Initially px prices are pz = 1 and py = 1. The consumer has income 100. a) Determine the optimal consumption bundle (x*,y*). Now suppose that the price of a decreases to 0.5 b) Determine the income effect and the substitution effect corresponding to the price change. c) Determine the compensating variation (CV) of the price change
Microeconomics A Contemporary Intro
10th Edition
ISBN:9781285635101
Author:MCEACHERN
Publisher:MCEACHERN
Chapter6: Consumer Choice And Demand
Section: Chapter Questions
Problem 13PAE
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3. A consumer's utility function is given by U(x, y) = min{x,y}. Initially px prices are pz = 1 and py = 1. The consumer has income 100.
a) Determine the optimal consumption bundle (x*,y*).
Now suppose that the price of a decreases to 0.5
b) Determine the income effect and the substitution effect corresponding to the price change.
c) Determine the compensating variation (CV) of the price change
Transcribed Image Text:3
A consumer's utility function is given by U(z. y) = min{r.y). Initially
= 1. The consumer has income 100.
prices are pr = 1 and py
a) Determine the optimal consumption bundle (x,y).
Now suppose that the price of a decreases to 0.5
b) Determine the income effect and the substitution effect corresponding to the
price change.
c) Determine the compensating variation (CV) of the price change.
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