Individual number- 1

Minimum number - 1

Max number- 9

Median - 3

1-digit- 8

2-digit - 26

An agent has a utility function over goods 1 and 2 of the form , where c is your 1-digit number and d is your minimum number. The agent's income is equal to your 2-digit number. Initially, the price of good 1 is your median number and the price of good 2 is your individual number.

Let the price of good 1 change to your maximum number. For good 1, determine for this price change the

a) total price effect

b) the substitution effect

c) the income effect

3. For the same problem you analysed in Question 2, find for that price change the

a) Laspeyres measure of the welfare change

b) Paasche measure of the welfare change

c) compensating variation

d) equivalent variation