Suppose that pb=1, pm=2 and that Lucy's income equals your answer to the previous question. To...

 

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Suppose that pb=1, pm=2 and that Lucy's income equals your answer to the previous question. To reduce the consumption of meat, the government introduces a sales tax on it. The price of meat after the tax is p'm=2xpm. What is the substitution effect for meat (M)? Note: consider this a large change in price and compute the SE without dividing by the price change (the answer is rounded at the second decimal point) Income = 18, Her utility function is given by u(M,B)=M^1/2+2B^1/2 and the prices of meat and broccoli are pm and pb. a. SEm -0.72 b. SEm -0.26 c. SEm=0 Suppose that pb=1, pm=2 and that Lucy's income equals your answer to the previous question. To reduce the consumption of meat, the government introduces a sales tax on it. The price of meat after the tax is p'm=2xpm. What is the substitution effect for meat (M)? Note: consider this a large change in price and compute the SE without dividing by the price change (the answer is rounded at the second decimal point) Income = 18, Her utility function is given by u(M,B)=M^1/2+2B^1/2 and the prices of meat and broccoli are pm and pb. a. SEm -0.72 b. SEm -0.26 c. SEm=0

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