When the prices of goods x and y were €2 per unit of either good, a consumer spent all his monetary income to buy 20 units of x and 60 units of y. When the price of y increased to €4 per unit, the substitution effect would lead her to choose 60 units of x and 30 units of y. Should this person be paid a €80 compensation, she would feel as good as before the price change. True or false, explain.
When the prices of goods x and y were €2 per unit of either good, a consumer spent all his monetary income to buy 20 units of x and 60 units of y. When the price of y increased to €4 per unit, the substitution effect would lead her to choose 60 units of x and 30 units of y. Should this person be paid a €80 compensation, she would feel as good as before the price change. True or false, explain.
Chapter10: Consumer Choice Theory
Section: Chapter Questions
Problem 6P
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Transcribed Image Text:When the prices of goods x and y were €2 per unit of either good, a consumer spent all his
monetary income to buy 20 units of x and 60 units of y. When the price of y increased to €4 per unit,
the substitution effect would lead her to choose 60 units of x and 30 units of y. Should this person be
paid a €80 compensation, she would feel as good as before the price change. True or false, explain.
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