Ms A likes grapes () and strawberries (). With every two pieces of grapes she consumes three pieces of strawberries, and every piece of grape gives her a utility level of 1. Income of Ms A is . Per-piece prices of grapes and strawberries are and respectively. Suppose the price of strawberries changes to . What should be the change in income () to maintain the same level of utility?
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Ms A likes grapes (G) and strawberries (S). With every two pieces of grapes she consumes three pieces of strawberries, and every piece of grape gives her a utility level of 1. Income of Ms A is I. Per-piece prices of grapes and strawberries are p_G = 3 and p_S = 2 respectively. Suppose the price of strawberries changes to p_S = 3. What should be the change in income (Δ I) to maintain the same level of utility? (A) Δ I = 5I/4 (B) Δ I = -5I/4 (C) Δ I = I/4 (D) Δ I = -I/4
Also written as: Ms A likes grapes (G) and strawberries (S). With every two pieces of grapes she consumes three pieces of strawberries, and every piece of grape gives her a utility level of 1. Income of Ms A is I. Per-piece prices of grapes and strawberries are p_G = 3 and p_S = 2 respectively. Suppose the price of strawberries changes to p_S = 3. What should be the change in income (Delta I) to maintain the same level of utility?
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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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