how to know what are what is p1, w1, which how to map the values A consumsumer of two goods has indirect utilityv(p, w) =√w-1/2P₁ + P₂(a) Find the indirect money-metric utility e(p, v(p, w)).(b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2)to (p', w')= ((1,9), 5).can you explain the notation please break it down each part of it, please teach Howdo you know where to place the values?The indirect money-metric utility e(p, v(p, w)) can be calculated as follows:e(p, v(p, w)) = v(p, w) - ((p1* w1) + (p2 * w2))plugging in the values from the problem, we get:e(p, v(p, w)) = (sqrt(w))/p1^-0.5+p2^-0.5- ((44) + (9 * 5))e(p, v(p, w)) = 2 - 41CV = 2e(p, v(p, w)) = -39The compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9),5) can be calculated as follows:CV = e(p', w')- e(p, w)plugging in the values from the problem, we get:CV-39 (-41)This means that the consu would be willing to pay up to $2 in order to maintain their originallevel of utility.

In the study of economics, the term utility can be defined as the total satisfaction or benefit that…

A consumer of two goods has indirect utility v(p, w) = -1/2 P₁ + P₂ (a) Find the indirect money-metric utility e(p, v(p, w)). (b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9), 5).

A consumer of two goods has indirect utility v(p, w) = -1/2 P₁ + P₂ (a) Find the indirect money-metric utility e(p, v(p, w)). (b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9), 5).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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