A consumer has the utility function uxy min2x3y., Ask an Expert

Economics

A consumer has the utility function U(X,Y) = min(2X,3Y). Initially the price of X is $3 (px=3) and the price of Y is $2 (py=2). Our consumer has an income of $195 (m=195).

Now assume that the price of Y rises from $2 to $3 (py' =3) while the price of X stays the same.

a) find out compensating variation.

b) find out equivalent variation.

c) Define and distinguish between compensating variation and equivalent variation in the context of your answers in part a and in part b.

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M966479

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