in class, we looked at the CV and EV associated with changes in prices. The same measures can be used if wealth also changes; thus, for instance, if prices and wealth change from pº, wº) to (p¹, w¹), then the CV is e(p¹, v(p¹,w¹)) -e(p¹, v(pº, wº)). Consider the expenditure function e(p, u) = U P₁ + P₂ Let initial prices and wealth be pº = (1, 1) and wº = 1 respectively. (a) Find the indirect money-metric utility function e(p, v(p, w)). (b) Evaluate the EV and CV if p¹ = pº (i.e. prices remain the same) and wealth changes from wo to w¹ = 2. (c) Evaluate the EV and CV if prices change from pº to p² = (2, 1) and wealth changes from wo to w²2.5.

in class, we looked at the CV and EV associated with changes in prices. The same measures can be used if wealth also changes; thus, for instance, if prices and wealth change from pº, wº) to (p¹, w¹), then the CV is e(p¹, v(p¹,w¹)) -e(p¹, v(pº, wº)). Consider the expenditure function e(p, u) = U P₁ + P₂ Let initial prices and wealth be pº = (1, 1) and wº = 1 respectively. (a) Find the indirect money-metric utility function e(p, v(p, w)). (b) Evaluate the EV and CV if p¹ = pº (i.e. prices remain the same) and wealth changes from wo to w¹ = 2. (c) Evaluate the EV and CV if prices change from pº to p² = (2, 1) and wealth changes from wo to w²2.5.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter9: Aggregate Expenditures

Section: Chapter Questions

Problem 5E

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