What bundle would she choose if she faced the

This preview shows page 1 - 2 out of 2 pages.

(3) What bundle would she choose if she faced the original prices and had just enoughincome to reach the new indifference curve? Draw the budget line that passes throughthis bundle at the original prices. How much income would the consumer need atthe original prices to have this budget line?(4) What is the maximum amount that she would pay to avoid the price increase?Is this the compensating or the equivalent variation?(5) What bundle would the consumer choose if she faced the new prices and had justenough income to reach her original indifference curve? Draw the budget line thatpasses through this bundle at the new prices.How much income would she havewith this budget?(6) In order to be as well-off as she was with her original bundle, by how muchwould the consumer’s income have to rise? Is this the compensating or the equivalentvariation?1

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 2 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Summer
Professor
Olivier

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture