Question: A consumer cares only about two goods x 1 and x 2 and his/her preferences are represented by the utility function: U( x 1 ,

A consumer cares only about two goods x1 and x2 and his/her preferences are represented by the utility function:

U(x1, x2)=x1+2*ln(x2).

The prices for the goods are p1 and p2 and the consumer's income is denoted by m.

Assume that the vector of prices is p0 =(p10, p20 )=(3,6) and that the implementation of some policy leads to a new vector of prices p'=(p1 ,p2)=(6,6) and leaves income m=9 unchanged.

a) Compute indirect utility function

b) Compute expenditure function

c) Determine the numerical values of Equivalent and Compensating Variations.

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