√yLet U(x,y) =√√xy with MUX=2√√xand MUy2√√√yLet I = $100, Px = $10 and Py = $10 be the initial set ofprices and income. Now, let Px rise to $25. What is the (approximate) income effect of this change inprices?-0.3-1.2-2.3-3.2

Step 1: Optimal Consumption Bundle Before the Price ChangeGiven:Utility function: U(x,y)=xyMarginal…

Answered: √y Let U(x,y) =√√xy with MUX = 2√√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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√y Let U(x,y) =√√xy with MUX = 2√√x and MUy 2√√√y Let I = $100, Px = $10 and Py = $10 be the initial set of prices and income. Now, let Px rise to $25. What is the (approximate) income effect of this change in prices? -0.3 -1.2 -2.3 -3.2