Monday

October 20, 2014

October 20, 2014

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

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**

Microeconomics - Given the utility function U(C,T) = 3C+2T A budget constraint ...

economic - a)by use of diagrams where appropriate differentiate between ...

economics - Consider a consumer who has an experienced utility function given ...

economics math - Consider a consumer who has an experienced utility function ...

Micro Economics - Briefly explain the following: (a)Economic cost and accounting...

Microeconomics (margin Utility) need clarification - Someone was kind enough to ...

Microeconomics help please (urgent) - You go to an auction and set a maximum ...

economics - 1.. Suppose that U(x; y) = min(x; y) with px = 1 and py = 1. ...

ECON - Suppose Fred has a utility function of the form U = X ½ Y ½ . Fred has an...

ECONOMICS - Sorry, the last Question didn't post Suppose Fred has a utility ...