Tom's income is 32. He consumes a single consumption good, C, which has a price of 2. His utility function depends on his marital status: when happily married, his utility is given byU=C^(1/2) When he is not married, his utility is given by U=0.5C^(1/2) a. Suppose that Tom is not currently married. What is his utility? Now suppose that Tom gets married.What is his utility? Assume Tom can spend all his income on his own consumption when he is married. b. Use compensating variation (CV) and equivalent variation (EV) to calculate the value of marriage to Tom. How do the two figures compare?
Tom's income is 32. He consumes a single consumption good, C, which has a price of 2. His utility function depends on his marital status: when happily married, his utility is given byU=C^(1/2) When he is not married, his utility is given by U=0.5C^(1/2) a. Suppose that Tom is not currently married. What is his utility? Now suppose that Tom gets married.What is his utility? Assume Tom can spend all his income on his own consumption when he is married. b. Use compensating variation (CV) and equivalent variation (EV) to calculate the value of marriage to Tom. How do the two figures compare?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Tom's income is 32. He consumes a single consumption good, C, which has a
His utility function depends on his marital status:
when happily married, his utility is given byU=C^(1/2)
When he is not married, his utility is given by U=0.5C^(1/2)
a. Suppose that Tom is not currently married. What is his utility? Now suppose that Tom gets married.What is his utility? Assume Tom can spend all his income on his own consumption when he is married.
b. Use compensating variation (CV) and equivalent variation (EV) to calculate the value of marriage to Tom. How do the two figures compare?
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