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Consumer Surplus


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i1) Using the demand function, 962 = g and x1 = 3%”. Assume that the initial price of good 1
2 1 is $4, i.e. 1912,84, and the price of good 2 is $4, i.e. 392:,3‘4. Find Anne’s level of utility at these
prices. Suppose that the price of good 1 went up to $5, i.e.p1=,8‘5 and the price of good 2 went up
to $12, i.e.p2=,$‘12. Find Anne’s level of utility as a function of the new prices and her income
7):. Calculate her equivalent variation is it different to the compensating variation you found
earlier? (2 marks)

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