Question: Consider a consumer whose preferences can be represented by the utility function u(x,y)=x+y a) Originally, Px=1, Py=2 and m =1. What bundle does the consumer

Consider a consumer whose preferences can be represented by the utility function u(x,y)=x+y

a) Originally, Px=1, Py=2 and m =1. What bundle does the consumer choose, and what is his utility from this bundle?

b) The price of good x then rises to 3. Calculate the compensating variation. (Hint: at the new price ratio, what good will he spend his income on?)

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