A consumer’s preferences between goods x and y are represented by the utility function u(x, y) = 2min{x, y}+10. Suppose this consumer has income of $16, the price of good x is $3 and the price of good y is $1. Suppose the price of good x increases to $7 while the price of good y and the consumer’s income stay constant. Calculate the magnitudes of the compensating and the equivalent variations. Explain what each measures.

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