Serena's utility function is U(x, y) = 3 lnx+6lny. Her income is M = 72. The...
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Serena's utility function is U(x, y) = 3 lnx+6lny. Her income is M = 72. The initial prices are P = 2 and Py = 2. The price of X increases to P = 4. (a) Compute the Equivalent Variation of this change in the price of X. (b) Serena's younger sister, Victoria, also has an income of M = 72. Victoria's utility function is V(x, y) = min{x,y}. Compute the Equivalent Variation of the change in the price of X. (8 marks) = (4 marks) (c) Serena's older sister, Hope, also has an income of M = 72. Hope's utility function is W (x, y) 2x + 2y. Compute the Equivalent Variation of the change in the price of X. (4 marks) (d) Is Victoria's Equivalent Variation greater or smaller (in magnitude) than Serena's? Give an economic interpretation of why this is the case. Is Hope's Equivalent Variation greater or smaller (in magnitude) than Serena's? Give an economic interpretation of why this is the (4 marks) case. Serena's utility function is U(x, y) = 3 lnx+6lny. Her income is M = 72. The initial prices are P = 2 and Py = 2. The price of X increases to P = 4. (a) Compute the Equivalent Variation of this change in the price of X. (b) Serena's younger sister, Victoria, also has an income of M = 72. Victoria's utility function is V(x, y) = min{x,y}. Compute the Equivalent Variation of the change in the price of X. (8 marks) = (4 marks) (c) Serena's older sister, Hope, also has an income of M = 72. Hope's utility function is W (x, y) 2x + 2y. Compute the Equivalent Variation of the change in the price of X. (4 marks) (d) Is Victoria's Equivalent Variation greater or smaller (in magnitude) than Serena's? Give an economic interpretation of why this is the case. Is Hope's Equivalent Variation greater or smaller (in magnitude) than Serena's? Give an economic interpretation of why this is the (4 marks) case.
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Answer rating: 100% (QA)
a To compute the Equivalent Variation EV of the change in the price of good X we need to find the amount of income that would leave Serena just as well off as she was before the price change Mathemati... View the full answer
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