Consider the following utility function for Mia: U(x₁x₂)=x²x2 where the prices of each good are P₁ = 3; P₂ = 5 and income is given by M=135. What will be the size of the Hicksian substitution effect if there is an increase in the price of good x₁ from £3 to £6? O Holding utility constant, good x₁ will fall from 22.5 units to approximately 19.7 units, while good x2 will increase from 13.5 units to approximately 15.8 units. O Good x₁ will rise from 22.5 units to approximately 26.5 units, while good x2 will increase from 13.5 units to approximately 15.8 units. O Good x₁ will fall from 22.5 units to approximately 16.9 units, while good x2 will remain constant at 13.5 units. O Holding utility constant, good x₁ will fall from 25 units to approximately 18.8 units, while good x2 will increase from 15 units to approximately 22.5 units. O Good x₁ will fall from 22.5 units to approximately 15.9 units, while good x2 will increase from 13.5 units to approximately 19.1 units.

Consider the following utility function for Mia: U(x₁x₂)=x²x2 where the prices of each good are P₁ = 3; P₂ = 5 and income is given by M=135. What will be the size of the Hicksian substitution effect if there is an increase in the price of good x₁ from £3 to £6? O Holding utility constant, good x₁ will fall from 22.5 units to approximately 19.7 units, while good x2 will increase from 13.5 units to approximately 15.8 units. O Good x₁ will rise from 22.5 units to approximately 26.5 units, while good x2 will increase from 13.5 units to approximately 15.8 units. O Good x₁ will fall from 22.5 units to approximately 16.9 units, while good x2 will remain constant at 13.5 units. O Holding utility constant, good x₁ will fall from 25 units to approximately 18.8 units, while good x2 will increase from 15 units to approximately 22.5 units. O Good x₁ will fall from 22.5 units to approximately 15.9 units, while good x2 will increase from 13.5 units to approximately 19.1 units.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.5P

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