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Unformatted text preview: (X*, Y*) . b) Now suppose that the price of good X increases to $10. Solve for the new demand bundle (X**, Y**) . c) Draw a diagram in X-Y space clearly labeling all optimal bundles, indifference curves, budget lines, slopes, and intercepts. d) On your graph, show the income and substitution effects of the price change. e) Under the new pricing scheme, the amount of income needed to make the consumer just as well off as he was before prices changed is called the compensating variation. Calculate the compensating variation for this consumer and label it on your graph. f) How much income would the consumer need to be compensated so that she could afford her original bundle? Is this more or less than the compensating variation?...
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This note was uploaded on 02/03/2010 for the course ECON econ102a taught by Professor Bandy during the Summer '09 term at UC Riverside.
- Summer '09