HW chap 6-12

Ifxisincreasedandthelevelofutilityisunchangedymustdecr

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Unformatted text preview: e price of Y is $4 per unit? Instructions: Enter your answer as a whole number. 36 When Esther's income is $20, the price of X is $4, and the price of Y increases from $1 to $4, what is the uncompensated total change in Y? Instructions: Enter the absolute value. 9 What is the substitution effect on Y when the price of Y increases from $1 to $4? Instructions: Enter the absolute value. 6 What is the income effect on Y when the price of Y increases from $1 to $4? Instructions: Enter the absolute value. 3 What is Esther's compensating variation for the price change? Instructions: Enter your answer as a whole number. $ 24 Explanation: MRSXY = ­ MUX / MUY = ­ Y / (X + 1). If X is increased and the level of utility is unchanged, Y must decrease to accommodate for the increase in X. Therefore, Y / (X + 1) must decrease, implying declining MRS. Esther's optimal choice when her income is $20, the price of X is $4, and the price of Y is $1. The tangency between the indifference curve and the budget line implies: The budget equation implies: Therefore, Y = 4X + 4 = 12. Her utility in...
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This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.

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