Suppose a consumer faced with prices p_1 = 9, p_2 = 12 consumes at some point x^0 where x_1 = 4, x_2= 7, U(x^0) = 10. When p_1 is lowered to p_1 = 8, the consumer would move to point x^1, where x_1= 6, x_2= 6, U(x^1) = 15. From these data, estimate the following values: a) How much would the consumer be willing to pay to face the lower price of x_1? b) How much would a consumer initially at x^1 have to be paid to accept the higher price of x1 voluntarily? c) Are your answers to (a) and (b) exact calculations of these values, or are they approximations? If the latter, is the direction of bias predictable? d) How much better off is the consumer at x^1 than at x^0?

Suppose a consumer faced with prices p_1 = 9, p_2 = 12 consumes at some point x^0 where x_1 = 4, x_2= 7, U(x^0) = 10. When p_1 is lowered to p_1 = 8, the consumer would move to point x^1, where x_1= 6, x_2= 6, U(x^1) = 15. From these data, estimate the following values: a) How much would the consumer be willing to pay to face the lower price of x_1? b) How much would a consumer initially at x^1 have to be paid to accept the higher price of x1 voluntarily? c) Are your answers to (a) and (b) exact calculations of these values, or are they approximations? If the latter, is the direction of bias predictable? d) How much better off is the consumer at x^1 than at x^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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