The Maxwell School

Syracuse University

Syracuse University

The Maxwell School

Syracuse University

Syracuse University

Given:

A household has Cobb-Douglas preferences with U=X^0.4*Y^0.6

Its demands for X and Y are: X = 0.4*M/Px and Y = 0.6*M/Py

Its expenditure function is: M=U*(Px/0.4)^0.4*(Py/0.6)^0.6

Initially, Px=2, Py=2 and M=1000

The government wishes to decrease X to 100 by raising Px appropriately

Determine:

The compensating variation for the policy.

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URL: https://wilcoxen.maxwell.insightworks.com/pages/3519.html

Peter J Wilcoxen, The Maxwell School, Syracuse University

Revised 08/18/2016

URL: https://wilcoxen.maxwell.insightworks.com/pages/3519.html

Peter J Wilcoxen, The Maxwell School, Syracuse University

Revised 08/18/2016