consider the impact on the consumer of a given increase in price.
Question Description
Consider a consumer with income of M = 400 and preferences over some good, X, and all other goods, Y , represented by the utility function U (X, Y ) = 100 ln X + Y . Now let's compute this consumer's pre- and post-change Hicksian demand curves. Suppose that the price starts at $4 and goes up to $5.
- (i) Compute the consumers pre-change utility level.
- (ii) For any given price, the pre-change Hicksian demand curve must satisfy two conditions. First, the slope of the budget constraint must be equal to the MRS, and second, the new bundle must generate the same level of utility, which is to say, it must be on the original indifference curve. Using these two conditions, compute the Hicksian demand curve defined by the pre-change utility level. [Hint: This is a trick question. It should require very little math.]
- (iii) Without doing any additional math, graph the inverse Marshallian demand curve and both inverse Hicksian demand curves, mark the compensating and equivalent variation for the price increase from $4 to $5 and explain why they are the same.
This question has not been answered.
Create a free account to get help with this and any other question!
Similar Content
Studypool values your privacy. Only questions posted as Public are visible on our website.
Brown University
1271 Tutors
California Institute of Technology
2131 Tutors
Carnegie Mellon University
982 Tutors
Columbia University
1256 Tutors
Dartmouth University
2113 Tutors
Emory University
2279 Tutors
Harvard University
599 Tutors
Massachusetts Institute of Technology
2319 Tutors
New York University
1645 Tutors
Notre Dam University
1911 Tutors
Oklahoma University
2122 Tutors
Pennsylvania State University
932 Tutors
Princeton University
1211 Tutors
Stanford University
983 Tutors
University of California
1282 Tutors
Oxford University
123 Tutors
Yale University
2325 Tutors