Page 1 of 1

Consider a market with two goods: good 1 and good 2. Suppose that the price of good 1 is $2 and the price of good 2 is $

Posted: Mon Apr 11, 2022 6:07 am
by answerhappygod
Consider a market with two goods: good 1 and good 2.
Suppose that the price of good 1 is $2 and the price of good 2
is $2.
Consider a consumer with $188.
Assume that the consumer has the following utility function:
U(x1,x2) = min{x1/4,
x2/6}
Assume that the price of good 1 increases to $6 and the price of
good 2 increases to $7.
First, obtain the indirect utility function as a function of
income and prices.
Then, calculate the optimal bundle the initial prices $2 and
$2. (Leave things in fractions - do not round).
By using the initial bundle, calculate the initial utility
level. (Leave things in fractions - do not round).
Calculate the amount of money required to obtain the initial
utility under the new prices $6 and $7. (Leave things in fractions
- do not round).
Finally, calculate the compensating variation.