An individual´s utility function is U = x0.5 y0.5 While the budget constraint is x + 4y = 100 Derive the expenditure function. Calculate the CV and EV when the price of the good x increases from 1 to 4.

An individual´s utility function is U = x0.5 y0.5 While the budget constraint is x + 4y = 100 Derive the expenditure function. Calculate the CV and EV when the price of the good x increases from 1 to 4.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 12SQ

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

An individual´s utility function is

U = x^0.5 y^0.5

While the budget constraint is

x + 4y = 100

Derive the expenditure function.
Calculate the CV and EV when the price of the good x increases from 1 to 4.

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