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Sarah has the utility function

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2. (a) Sarah has the utility function u(x, y) = min{x, y}, where x is the number of pairs of earrings she buys per week and y is the number of dollars per week she has left to spend on other things. (It is possible that she buys fractional numbers of pairs of earrings per week.) If she originally had an income of $100 per week and was paying a price of $8 per pair of earrings, then if the price of earrings rose to $13 per pair, what is her compensating variation of that price change (measured in dollars per week)?

 

Paper#27887 | Written in 18-Jul-2015

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