Suppose Bernadette has a utility function resulting in an MRS = Y / X (from U = √XY) and she has an income of $80 (i.e. M = 80). Suppose she faces the following prices, PX = 6 and PY = 5. If the price of good Y goes up to PY = 6, while everything else remains the same, find Bernadette’s equivalent variation (EV).
The answer is EV = - 6.97, please show your work.
Income = 80$
M=80
Px=6 and Py=5
Firstly we will solve B price , Now A price,
Suppose 6x=5y,
M=6x+5y 5y=6.07
80=5y+6y y=1.13
y=7.28 =6.07-5(1.13)
6x=5y =0.94
6x=5(7.28)
6x=36.4
=6.07
Evaluation price= 6.07-0.94=5.13
Actually i tried this question 4 to 5 times and everytime i got this answer , maybe the answer you wrote was incorrect(maybe) please let me know in the comments if you have any problem in the format or in the answer i will try more for you . Please leave a upvote , much needed :)
Get Answers For Free
Most questions answered within 1 hours.