Ed's utility from vacations (V)and meals (M)is given by the function U(V,M)= V²M.Last year,the price of vacations was $200 and the price of meals was $50.This year,the price of meals rose to $75,the price of vacations remained the same.Both years,Ed had an income of $1500.
a.Calculate the change in consumer surplus from meals resulting from the change in meal prices.
b.What is the compensating variation for the price change in meals?
c.Calculate the equivalent variation for the price change in meals.

Question

Quizplus · Accepted Answer

The Answer of Ed's utility from vacations (V)and meals (M)is given by the function U(V,M)= V²M.Last year,the price of vacations was $200 and the price of meals was $50.This year,the price of meals rose to $75,the price of vacations remained the same.Both years,Ed had an income of $1500.
a.Calculate the change in consumer surplus from meals resulting from the change in meal prices.
b.What is the compensating variation for the price change in meals?
c.Calculate the equivalent variation for the price change in meals.

Ed's Utility from Vacations (V)and Meals (M)is Given by the Function