Sam's is interested in two goods, X and Y. His indirect utility function isU* = M px-0.8 py0.8-1. ( same as U* = M /(px0.8 py1-0.8 ) ) where M is Sam's income, and px and py denote respectively the price of good X and the price of good Y. Sam's market demand function for good X is X*=0.8M/px . Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed by the government, assuming his income is M=514 and price of good Y is equal to 4. Sam's is interested in two goods, X and Y. His indirect utility function is1-0.8(same as U* = M/(px0.8 py ) )-0.8 0.8-1.U* = MPx pywhere M is Sam's income, and px and py denote respectively the price of good X and the price of good Y.Sam's market demand function for good X is X*=0.8M/px.Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposedby the government, assuming his income is M=514 and price of good Y is equal to 4.

Compensating variation represents the amount of income that must be given to the consumer to permit…

Answered: Sam's is interested in two goods, X and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Sam's is interested in two goods, X and Y. His indirect utility function is

U* = M p_x^-0.8 p_y^0.8-1. ( same as U* = M /(p_x^0.8 p_y^1-0.8 ) )

where M is Sam's income, and p_x and p_y denote respectively the price of good X and the price of good Y.

Sam's market demand function for good X is X*=0.8M/p_x .

Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed by the government, assuming his income is M=514 and price of good Y is equal to 4.

Sam's is interested in two goods, X and Y. His indirect utility function is
1-0.8
(same as U* = M/(px0.8 py ) )
-0.8 0.8-1.
U* = MPx py
where M is Sam's income, and px and py denote respectively the price of good X and the price of good Y.
Sam's market demand function for good X is X*=0.8M/px.
Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed
by the government, assuming his income is M=514 and price of good Y is equal to 4.

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