# Lou's preferences over pizza (x) and other goods (y) are given by U(x, y) = xy, with

## Question:

a) Calculate his optimal basket when Px = 4 and Py = 1.

b) Calculate his income and substitution effects of a decrease in the price of food to $3.

c) Calculate the compensating variation of the price change.

d) Calculate the equivalent variation of the price change.

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## Step by Step Answer:

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