This class exercise is from W3 in MT and covers Slutsky Equation (Consumer Theory topic). All the exercises are thoroughly calculated, clearly written with good explanation and accurate solutions.
pi =3 the
price of good 1 decreases
,
so the relative price of Xa increases
,
so the demand for ×
,
increases as there are
perfect subs .
Bc :
Ux , -1
5×2 -_
m since p,
-
pz ,
then (✗F. ✗F) =
( 74,0 )
( F. ✗F) ( 73,0 )
'
BC :
3x ,
+
5×2 -_ m since pi <
pie ,
then ✗
=
note :
perfect substitutes
means no sub .
effect
, before after
pL=3
{ pn=5
120
|pd=4
m=
Pd -4
BC , :
Jxn +
4×1=120 BCL :
5Xn + 3×d = 120
7pn= 24
, Mpd -30 Mlp'n= 40 7pd= 30
K >
pd spend all delphinium pin pd all
hollyhocks
i
ph 1cg spend
: <
so on so on
,
mlpd -30
mlpn
'
=
40
Adelphi Adelphi
nium
nium
40
30
30
BG ka
BC ,
K,
> hollyhocks > hollyhocks
24 30 40
old commodity bundle :
( ✗ d* ,
✗ E) =
(30,0) cause we
spend all on
delphinium as it is
cheaper
price after changes { pd
4
price of delphinium does not
change
=
:
so
'
=3
pn so income needed :
m= 30×4=120
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