Kayla\'s equivalent variation (EA) is? U- q, 0.6q, 0.4 Her uncompensated demands
ID: 1136288 • Letter: K
Question
Kayla's equivalent variation (EA) is?
U- q, 0.6q, 0.4 Her uncompensated demands for good q1 and good q2 are 0.4Y 0.6Y and a2 2 1P1 and her compensated demands for good q and good q2 are 0.4 0.6 P2 q11.176U and q2 0.784U Therefore, her expenditure function (E) is E-1.96U[p, 004 Let the price of good q1 initially be $30 and the price of good q2 be $10. Kayla has income of $900 If the price of good q1 increases from $30 to S60, what is Kayla's compensating variation? Kayla's compensating variation (CV) is CV(Enter a numeric response using a real number rounded to two decimal places.)Explanation / Answer
CV = 464.09
EV = -306.15
We got CV from expenditure function where we subtract Expenditure function by putting new price of good 1 keeping utility and p2 constant (utility at initial price) and with Expenditure function with initial prices and utility.
And Ev from expenditure function by first putting initial price and new utility from change in price of first good and then subtracting this by new expenditure function with new price of good 1 and the new utility from change in price of good 1
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