(c) Calculate the substitution effect. Hint: You need to calculate an interim income m' such that the purchasing power is constant after the price change, then calculate Ax{ = x₁(m', p₁) − x1(16, p₁) (see p141-142, Varian). - (d) Calculate the income effect. Hint: Using the same interim in- come in (c) to calculate Ax = x₁(16, p₁) - x1 (m', p₁) (see p143, Varian).

(c) Calculate the substitution effect. Hint: You need to calculate an interim income m' such that the purchasing power is constant after the price change, then calculate Ax{ = x₁(m', p₁) − x1(16, p₁) (see p141-142, Varian). - (d) Calculate the income effect. Hint: Using the same interim in- come in (c) to calculate Ax = x₁(16, p₁) - x1 (m', p₁) (see p143, Varian).

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter7: Consumer Choice: Maximizing Utility And Behavioral Economics

Section: Chapter Questions

Problem 6QP

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