A consumer has the following demand function, I Q(p1, I) = 20 + 10p1 Suppose that I = 100 and p1 = $4. Suppose that the price changes to pi = $1. (a) Calculate the total effect of the change in price from 4 to 1 dollars on the quantity demanded. (b) Using the Slutsky decomposition, calculate the substitution effect and the income effect corresponding to the change in price from 4 to 1 dollars.
A consumer has the following demand function, I Q(p1, I) = 20 + 10p1 Suppose that I = 100 and p1 = $4. Suppose that the price changes to pi = $1. (a) Calculate the total effect of the change in price from 4 to 1 dollars on the quantity demanded. (b) Using the Slutsky decomposition, calculate the substitution effect and the income effect corresponding to the change in price from 4 to 1 dollars.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.3P
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