A Californian student consumes Internet services (I) and books (B). Her preferences are represented by a Cobb-Douglas utility function of the type:...
This question has been answered
Question

2. A Californian student consumes Internet services (I) and books

(B). Her preferences are represented by a Cobb-Douglas utility function of the type: U(I, B) = I0.5 B0.5 . Initially Y = 100, PI = PB = 1. Lately, however, because of the electricity shortage, the price of the Internet services has increased to 2. The government has decided to give a transfer to the student so that she can recover her initial welfare. In order to determine the transfer the government has hired three consultants who have made the following suggestions:


Consultant A: The transfer should allow the student to buy her initial bundle.
Consultant B: The transfer should allow the student to get her initial level of utility.
Consultant C: The government should give her a transfer of 20.


(a) Using the expenditure function, find the amount of the transfer implied by consultant A.
(b) Find the amount of the transfer implied by consultant B.
(c) Determine whether the consumer is better or worse off from Consultant C's suggestion than before the price increases.

Answered by Expert Tutors

Fusce dui lectus, congue vel laore

ur laoreet. Nam risus ante, dapibus a molestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur laore
Step-by-step explanation
16411452
lestie consequat, ultrices ac magna. Fusce dui lectus, congue vel laoreet ac, dictum vitae odio. Donec aliquet. Lorem ipsum dolor sit amet, consectetur adipiscing elit. Nam lacinia pulvinar tortor nec facilisis. Pellentesque dapibus efficitur lao
1 Attachment
cheg.png
png
The student who asked this found it Helpful
Overall rating 100%
Get unstuck

487,593 students got unstuck by Course
Hero in the last week

step by step solutions

Our Expert Tutors provide step by step solutions to help you excel in your courses