For each of the following situations where the price of x decreases from
For each of the following situations where the price of x decreases from p1x to p2x (a-b), calculate the following:
i) the optimal basket at time 1 and time 2
ii) the income and substitution effect. What type of good does this suggest good x is?
iii) the compensating and equivalent variation. Explain in words what these mean
(a) u(x,y) = 7xy, p1x = 8, p2x = 2, py = 5, I = 80.
(b) u(x,y)=6x^1/3 y^2/3 ,p1x =8, p2x =1, py =2, I=48.