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Unformatted text preview: h ( p,U ) and her expenditure e ( p,U ) for a given utility level U . (iv) What are Lauras compensating variation C and her equivalent variation E for a change of p 1 to p 1 > 0? (v) Determine the change in Lauras consumer surplus CS for the price change in part (iv). (vi) Compare your results for the three welfare measures in parts (iv) and (v). In light of the inter-pretation of good 2 as money, provide an intuitive explanation for the dierence (or lack thereof) between the three measures. (vii) Would the ordinal comparison in part (vi) be dierent for Lauras friend Jody, whose utility function is u ( x ) = 1-e-x 1 + x 2 , all else equal? (viii) [ Bonus ] Discuss the dependence of the welfare measures C , E , and CS on wealth w , for Laura, Jody, and . .. Jane. 1...
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