In a two-good world, utility is . Each good's market price is Rupee 1 and disposable income is Rupees 100. If the price of is doubled keeping the price of unchanged, then the associated Compensating Variation is Rupees ________ (rounded off to one decimal place).
2 marksMicroeconomicsDemand theory and elasticityCompensating and equivalent variationHardabout 3 min
IIT JAM 2026 Question 55: Demand theory and elasticity
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In a two-good world, utility is u(x₁,x₂)=x₁ x₂. Each good's market price is Rupee 1 and disposable income is Rupees 100. If the price of X₂ is doubled keeping the price of X₁ unchanged, then the associated Compensating Variation is Rupees (*rounded off to one decimal place*).
Also written as: In a two-good world, utility is u(x_1,x_2)=x_1 x_2. Each good's market price is Rupee 1 and disposable income is Rupees 100. If the price of X_2 is doubled keeping the price of X_1 unchanged, then the associated Compensating Variation is Rupees (*rounded off to one decimal place*).
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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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