Abigail, Bernard, Cornwallis, and Douglas each derive a distinct amount of utility from consuming apples and bananas. Initially, apples cost $2, bananas cost $1, and each person receives a weekly allowance of $20 to spend. For each of the four sets of preferences described below, calculate the compensating variation if the price of apples rises to $5. (a) (4) Abigail: U(a,b) = a + 2b (b) (4) Bernard: U(a,b) = 2a + b (c) (4) Cornwallis: U(a,b) = b −a
Abigail, Bernard, Cornwallis, and Douglas each derive a distinct amount of utility from consuming apples and bananas. Initially, apples cost $2, bananas cost $1, and each person receives a weekly allowance of $20 to spend. For each of the four sets of preferences described below, calculate the compensating variation if the price of apples rises to $5. (a) (4) Abigail: U(a,b) = a + 2b (b) (4) Bernard: U(a,b) = 2a + b (c) (4) Cornwallis: U(a,b) = b −a
Micro Economics For Today
10th Edition
ISBN:9781337613064
Author:Tucker, Irvin B.
Publisher:Tucker, Irvin B.
Chapter6: Consumer Choice Theory
Section: Chapter Questions
Problem 3SQP
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Abigail, Bernard, Cornwallis, and Douglas each derive a distinct amount of utility from
consuming apples and bananas. Initially, apples cost $2, bananas cost $1, and each person receives a
weekly allowance of $20 to spend. For each of the four sets of preferences described below, calculate
the compensating variation if the price of apples rises to $5.
(a) (4) Abigail: U(a,b) = a + 2b
(b) (4) Bernard: U(a,b) = 2a + b
(c) (4) Cornwallis: U(a,b) = b −a
(d) (4) Douglas: U(a,b) = min(a,3b)
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