Sam's is interested in two goods, X and Y. His indirect utility function is (same as U* = M/(px0.8 p1-0.8 ) ) U* = MPx -0.8 0.8-1. Py where M is Sam's income, and px and py denote respectively the price of good X and the price of good Y. Sam's market demand function for good X is X*=0.8M/px. Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed by the government, assuming his income is M=514 and price of good Y is equal to 4.
Sam's is interested in two goods, X and Y. His indirect utility function is (same as U* = M/(px0.8 p1-0.8 ) ) U* = MPx -0.8 0.8-1. Py where M is Sam's income, and px and py denote respectively the price of good X and the price of good Y. Sam's market demand function for good X is X*=0.8M/px. Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed by the government, assuming his income is M=514 and price of good Y is equal to 4.
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.5P
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Sam's is interested in two goods, X and Y. His indirect utility function is
U* = M px-0.8 py0.8-1. ( same as U* = M /(px0.8 py1-0.8 ) )
where M is Sam's income, and px and py denote respectively the
Sam's
Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed by the government, assuming his income is M=514 and price of good Y is equal to 4.
Transcribed Image Text:Sam's is interested in two goods, X and Y. His indirect utility function is
1-0.8
(same as U* = M/(px0.8 py ) )
-0.8 0.8-1.
U* = MPx py
where M is Sam's income, and px and py denote respectively the price of good X and the price of good Y.
Sam's market demand function for good X is X*=0.8M/px.
Find the compensating variation for Sam given the price of good X rises from 1 to 4 dollars due to a per-unit tax imposed
by the government, assuming his income is M=514 and price of good Y is equal to 4.
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