Question: English version Assume two normal goods. The consumer faces P1 = 1 and p2 = 1, m = 20 and consumes 10 units of each

English version

Assume two normal goods. The consumer faces P1 = 1 and p2 = 1, m = 20 and consumes 10 units of each good. Finally, suppose that the consumption of this optimal basket gives it a utility of 100 (U = 100).

a) Find D1(p1, p2,m), D2(p1, p2,m), H1(p1, p2,U), H2(p1, p2,U) and E(p1, p2,U).

b) Suppose that the price of good 1 increases by $1 (p1 = 2). The consumer now buys 4 units of good 1 and 12 units of good 2. Finally, the new basket gives him a utility of 80 (U = 80). Find D1(p1, p2,m), D2(p1, p2,m), H1(p1, p2,U) and H2(p1, p2,U).

c) In addition to the information provided in part b), suppose E(p1, p2,U) = 22$

E(p1, p2,U) = 17$

E(p1, p2,U)=16

Calculate and interpret compensating variation, equivalent variation, and change in consumer surplus.

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