Posted by **Andrew** on Tuesday, November 28, 2006 at 1:56am.

1. The utility function is given by:

U=x+y

and the budget line is

x+2y=100.

Then the price of good x goes up to 4.

Find the Hicksian substitution effect, income effect, and total change in demand for good x from the change

---

Ok i read the theory but i cant solve the problem at all. I just need to a little and maybe i can apply the theory into it. Any help would be appreciated.

I can see why you are confused. Your marginal rate of substitution in utility is constant, and therefore linear. Which means you will always have a corner solution. That is, the slope of any and all indifference curves is -1.

The slope of the initial budget constraint is -1/2, and the person consumes x only. With the price increase, the slope of the budget constraint becomes -2 and the person consumes all y.

With this, you should be able to calculate the hicksian substitution effect and the income effect. (Hint, its all substitution).

## Answer this Question

## Related Questions

- macro - Assume that the utility function of a consumer is given by U = ln c1 + ...
- microeconomics - Fact 1: "The substitution effect(SE) must ALWAYS be negative (i...
- Economic - A Giffin good is not correctly described by which of the following? A...
- economics - When the price of summer tank tops falls and you buy more because ...
- economics - Consider a consumer who has an experienced utility function given ...
- Econ T/F - yes, its a true or false question is this a true or false question? ...
- economics math - Consider a consumer who has an experienced utility function ...
- Microeconomics - Given the utility function U(C,T) = 3C+2T A budget constraint ...
- microeconomics: work-leisure model - Consider the work-leisure model. Assume ...
- Economics - Articulate the economic relevance of Hicksian separation of ...

More Related Questions