Suppose U = 2X + Y, I = 20, Px = 2, and Py = 2. (a) Find Marshallian demand for X and Y . (b) What is Marshallian demand for X and Y if the price of X increases to 5? How much of the change in demand for X is the income effect and how much is the substitution effect? (c) How much is compensating variation for the price change described in part (b)? (d) How much is equivalent variation for the price change described in part (b)?
Suppose U = 2X + Y, I = 20, Px = 2, and Py = 2. (a) Find Marshallian demand for X and Y . (b) What is Marshallian demand for X and Y if the price of X increases to 5? How much of the change in demand for X is the income effect and how much is the substitution effect? (c) How much is compensating variation for the price change described in part (b)? (d) How much is equivalent variation for the price change described in part (b)?
Chapter5: Income And Substitution Effects
Section: Chapter Questions
Problem 5.5P
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Suppose U = 2X + Y, I = 20, Px = 2, and Py = 2.
(a) Find Marshallian
(b) What is Marshallian demand for X and Y if the
(c) How much is compensating variation for the price change described in part (b)?
(d) How much is equivalent variation for the price change described in part (b)?
( Please solve all the subparts ASAP I will give you thumbs up . )
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Step 1: In this step we will find out Marshallian demand for X and Y:
VIEWStep 2: In this step we will find out Marshallian demand for X and Y if the price of X increases to 5:
VIEWStep 3: In this step we will find out the compensating variation for the price change described in part (b):
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