Question

Greg has the following utility function: ?=?10.41?20.59. He has an income of $89.00, and he faces...

Greg has the following utility function: ?=?10.41?20.59. He has an income of $89.00, and he faces these prices: (?1,?2)=(7.00,2.00). Suppose that the price of x1 increases by $1.00. Calculate the compensating variation for this price change. Give your answer to two decimals.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
3. Suppose that a consumer has a utility function u(x1, x2) = x1 + x2. Initially...
3. Suppose that a consumer has a utility function u(x1, x2) = x1 + x2. Initially the consumer faces prices (1, 2) and has income 10. If the prices change to (4, 2), calculate the compensating and equivalent variations. [Hint: find their initial optimal consumption of the two goods, and then after the price increase. Then show this graphically.] please do step by step and show the graph
Suppose Rajesh has a utility function resulting in an MRS = Y / X (from U...
Suppose Rajesh has a utility function resulting in an MRS = Y / X (from U = √XY) and he has an income of $240 (i.e. M = 240). Suppose he faces prices PX = 8 and PY = 10. If the price of good Y goes down to PY = 8, while everything else remains the same, find Rajesh’s compensating variation (CV). The answer is CV = -25.34, please show your work
1. Suppose that a consumer has a utility function U(x1, x2) = x 0.5 1 x...
1. Suppose that a consumer has a utility function U(x1, x2) = x 0.5 1 x 0.5 2 . Initial prices are p1 = 1 and p2 = 1, and income is m = 100. Now, the price of good 1 increases to 2. (a) On the graph, please show initial choice (in black), new choice (in blue), compensating variation (in green) and equivalent variation (in red). (b) What is amount of the compensating variation? How to interpret it? (c)...
Consider the following utility function: U(x1,x2) X11/3 X2 Suppose a consumer with the above utility function...
Consider the following utility function: U(x1,x2) X11/3 X2 Suppose a consumer with the above utility function faces prices p1 = 2 and p2 = 3 and he has an income m = 12. What’s his optimal bundle to consume?
Suppose Bernadette has a utility function resulting in an MRS = Y / X (from U...
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.
Rachel spends her income between two goods: good x and good y. Her utility function is...
Rachel spends her income between two goods: good x and good y. Her utility function is given by u(x,y) = min{x,y}. The prices of both goods are P0 = 2 and P0 = 2. Her income 2xy isM0 =12. (a) Compute Rachel’s optimal bundle and call it (x0, y0). (b) Obtain the utility level associated with the optimal bundle (x0, y0) in (a). Call the utility level u0. (1 mark) Now, suppose that prices change but Rachel’s income remains the...
A consumer has utility function U(q1, q2) = q1 + √q2, income Y= 8, and faces...
A consumer has utility function U(q1, q2) = q1 + √q2, income Y= 8, and faces prices p1= 4 and p2= 1. Find all consumption bundles that satisfy the necessary condition for a utility maximizing choice. Then determine which of these is optimal.
Modou has a utility function U(X1,X2) = 2X1 + X2 The prices of X1 & X2...
Modou has a utility function U(X1,X2) = 2X1 + X2 The prices of X1 & X2 are $1 each and Modou has an income of $20 budgeted for this two goods. Draw the demand curve for X1 as a function of p1. At a price of p1 = $1, how much X1 and X2 does Modou consume? A per unit tax of $0.60 is placed on X1. How much of good X1 will he consume now? Suppose the government decides...
Ed?s utility from vacations (V) and meals (M) is given by the function U(V,M) = V2M....
Ed?s utility from vacations (V) and meals (M) is given by the function U(V,M) = V2M. Last year, the price of vacations was $200 and the price of meals was $50. This year, the price of meals rose to $75, the price of vacations remained the same. Both years, Ed had an income of $1500. a. Calculate the change in consumer surplus from meals resulting from the change in meal prices. b. What is the compensating variation for the price...
Assume that we have following utility maximization problem with quasilinear utility function: U=2√ x + Y...
Assume that we have following utility maximization problem with quasilinear utility function: U=2√ x + Y s.t. pxX+pyY=I (a)derive Marshallian demand and show if x is a normal good, or inferior good, or neither (b)assume that px=0.5, py=1, and I =10. Then the price x declined to 0.2. Use Hicksian demand function and expenditure function to calculate compensating variation. (c)use hicksian demand function and expenditure function to calculate equivalent variation (e) briefly explain why compensating variation and equivalent variation are...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT