Consider a consumer who consumes two goods and has utility function u(x1, x2) = = x2 + x1. The price of good 2 is 1, the price of good 1 is p, and income is m. Start with m = 10 and p = 1.5, and suppose that the price of good 1 increases by 25%. Compute the substitution and the income effect

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Consider a consumer who consumes two goods and has utility function
u(x1, x2) =
= x2 +
x1.
The price of good 2 is 1, the price of good 1 is p, and income is m. Start with m = 10
and p = 1.5, and suppose that the price of good 1 increases by 25%. Compute the
substitution and the income effect
Transcribed Image Text:Consider a consumer who consumes two goods and has utility function u(x1, x2) = = x2 + x1. The price of good 2 is 1, the price of good 1 is p, and income is m. Start with m = 10 and p = 1.5, and suppose that the price of good 1 increases by 25%. Compute the substitution and the income effect
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