Sam is interested in two goods, X and Y. His indirect utility function is 0.6-1. U*...

Transcribed Image Text:

Sam is interested in two goods, X and Y. His indirect utility function is 0.6-1. U* = M px-0.6 py ( same as U* = M /(px 0.6 py1-0.6) ) 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*=0.6M/px. Find the compensating variation for Sam given the price of good X rises from 1 to 8 dollars due to a per-unit tax imposed by the government, assuming his income is M=594 and price of good Y is equal to 5. Answer: Sam is interested in two goods, X and Y. His indirect utility function is 0.6-1. U* = M px-0.6 py ( same as U* = M /(px 0.6 py1-0.6) ) 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*=0.6M/px. Find the compensating variation for Sam given the price of good X rises from 1 to 8 dollars due to a per-unit tax imposed by the government, assuming his income is M=594 and price of good Y is equal to 5. Answer:

Answer rating: 100% (QA)

To find the compensating variation for Sam we need to compare his utility level before and after the ... View the full answer