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Questions › DSE › DSE 2004 › Q14
2 marks, −1Microeconomics › Demand theory and elasticity › Compensating and equivalent variationHardabout 3 min

DSE 2004 Question 14: Demand theory and elasticity

For the consumer with u=xyu=xyu=xy, income Rs. 101010, bread price Rs. 333, subsidized water price Re. 111 (true cost Rs. 222): if the government provides this person a lump-sum income subsidy that exactly offsets her utility loss on account of removal of the water subsidy, then the required lump-sum subsidy is

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For the consumer with u=xy, income Rs. 10, bread price Rs. 3, subsidized water price Re. 1 (true cost Rs. 2): if the government provides this person a lump-sum income subsidy that exactly offsets her utility loss on account of removal of the water subsidy, then the required lump-sum subsidy is (A) 9/4 (B) 5/3 (C) √56+4 (D) √200-10

Demand theory and elasticity has come up 161 times in 7 exams since 2004.

What this question tests

This question is on Compensating and equivalent variation, part of Demand theory and elasticity in Microeconomics.

Money measures of the welfare change from a price change.

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