Question

Consider$u(x_{1},x_{2})=2x_{1}^{0.5}+x_{2}$,$I=200$,$p_{1}=1$,$p_{2}=4$. If $p_{2}$ increases from $4 to $8, what is the compensating variation? Enter a number only, round to two decimals. If money needs to be taken away from the consumer include a negative sign.

Now consider what is the equivalent variation? Enter a number only, round to two decimals. If money needs to be taken away from the consumer include a negative sign.

Answer 1

Venac 2205+ -= 200 PI , P244 P² = $8. original Budget line: pisut path = I G+ 4% - 200 MRS = more Moxy = 2x + 2 5 dar) MRS2 B muss- 1 - 2 At Esblen MRS2 Prée ratio a Pille on 1 h = /4 21 4 = 5n = ²16 mom from B.C: +4 = 200 164 un 200 y = 184 opat 2 46 y = 184 u (= 16, 2=46) = 2816 + 46= sy. sertats Now P = $1, P2 = $8 MRS + 2 & 8 .8 2104, = 64. From utility in 54 = 2504 th & s4= 2/64 + x 542288 te I'=9*64 +8°38 - Su-16 I' = 178 2-38 CUZI' - I = 178-200 K = - 22

Eve Change in Income required to keep the consumer @ new citility but original prices New Budget live: x+ 8x4=200. New Eqsim cond" MRS2 482 + 6 = 1/8 x=64] From Budget constramt: 64+8 = 200. [h=17 Iz 1464t u* 17 = 132. FD2D09208530 B Eva I -I" - 200 - 132 = 68