Question: Hi guys please help. 4) Suppose there exists a consumer with a CobbDouglas utility function. U : zl] Recall that in this case, the demand

Hi guys please help.

4) Suppose there exists a consumer with a CobbDouglas utility function. U : zl] Recall that in this case, the demand equations are given by the following: TR. 221 = a P1 to. $2: lc ( Jpn 1 Suppose the value of a is a = 1 Suppose that this consumer has an income of $40!]. Suppose that the price of good 1 is pl = $1 and the price of good 2 is p2 = $2. a} (2 marks) Calculate the amount demanded of good I at this initial equilibrium. b} (2 marks) Suppose the price of good 1 decreased to p1 = $30.50. What will be the new amount demanded of good 1 at this newr equilibrium? o) (6 marks} This change in consumption of good 1 can be broken down into a substitution eEect and an income eect. Calculate these two effects. d) (5 nlarks] Calculate either the compensating vaziation or equivalent variation for this change in pce. Note you do not need to calculate both

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