Unformatted text preview: x and y . 2. ±ind the consumer’s indirect utility function and expenditure function. 3. Suppose that initially, I = 10, p x = 2, and p y = 1, and suppose that the price of good x , p x , increases to 3. (a) Describe how the consumer’s total expenditures on good x change as a result of the price increase. (b) ±ind the compensating variation and the equivalent variation re-sulting from this price change. 4. Consider once again the prices I = 10, p x = 2, and p y = 1. Use the Slutsky equation to come up with an estimate of the magnitude of the substitution and income e²ects due to a change in the price of good x at this particular point. 1...
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This note was uploaded on 11/12/2009 for the course ECONOMICS 701 taught by Professor Baker during the Spring '09 term at CUNY Hunter.
- Spring '09