Alex consumes only two goods, and , and has a utility function . Now suppose the price of changes while the price of and Alex's money income stay unchanged. Then
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2 marks, −1MicroeconomicsDemand theory and elasticityCompensating and equivalent variationHardabout 2 min
JNU SIS 2017 Question 36: Demand theory and elasticity
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Alex consumes only two goods, X and Y, and has a utility function U(X, Y) = XY. Now suppose the price of X changes while the price of Y and Alex's money income stay unchanged. Then (A) the Hicks compensating variation for a price rise exceeds the Slutsky compensating variation (B) the Slutsky compensating variation for a price rise exceeds the Hicks compensating variation (C) the Slutsky equivalent variation for a price fall exceeds the Hicks equivalent variation (D) the Hicks and Slutsky variations are always equal
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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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