Paige has the utility function $ U(x, y) = \ln(x) + 4y $.Do not worry about corner solutions when answering the following questions, you can use the Lagrangian multiplier method. Paige's budget constraint is $ p_x x + p_y y = I $. For a small change in $ p_x $, use the Slutsky equation to find the substitution and income effects for good $ x $.1. The substitution effect is 0 and the income effect is $-\frac{p_y}{4p_x^2}$.2. The substitution effect is $-\frac{p_y}{4p_x^2}$ and the income effect is 1.3. The substitution effect is $-\frac{p_y}{4p_x^2}$ and the income effect is 0.4. The substitution effect is 0 and the income effect is $-\frac{p_x}{4p_y^2}$.5. The substitution effect is $-\frac{p_x}{4p_y^2}$ and the income effect is 0.

The change in demand due to a change in purchasing power of a good is income effect. The…

For a small change in px, use the Slutsky equation to find the substitution and income effects for good x. The substitution effect is O and the income effect is The substitution effect is The substitution effect is Py 4p/ The substitution effect is Py 4p The substitution effect is O and the income effect is Px 4p² Py 4p²/ and the income effect is 1 and the income effect is 0 Pa 4p² and the income effect is 0

For a small change in px, use the Slutsky equation to find the substitution and income effects for good x. The substitution effect is O and the income effect is The substitution effect is The substitution effect is Py 4p/ The substitution effect is Py 4p The substitution effect is O and the income effect is Px 4p² Py 4p²/ and the income effect is 1 and the income effect is 0 Pa 4p² and the income effect is 0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

For a small change in $ p_x $, use the Slutsky equation to find the substitution and income effects for good $ x $.

1. The substitution effect is 0 and the income effect is $-\frac{p_y}{4p_x^2}$.

2. The substitution effect is $-\frac{p_y}{4p_x^2}$ and the income effect is 1.

3. The substitution effect is $-\frac{p_y}{4p_x^2}$ and the income effect is 0.

4. The substitution effect is 0 and the income effect is $-\frac{p_x}{4p_y^2}$.

5. The substitution effect is $-\frac{p_x}{4p_y^2}$ and the income effect is 0.

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