Solved

A Californian Student Consumes Internet Services (I)and Books (B)

Question 112

Essay

A Californian student consumes Internet services (I)and books (B).Her preferences are represented by a Cobb-Douglas utility function of the type: U(I,B)= I.5B.5.Initially Y = 100,
PI = PB = 1.Lately,however,because of the electricity shortage,the price of the Internet services has increased to 2.The government has decided to give a transfer to the student so that she can recover her initial welfare.In order to determine the transfer the government has hired three consultants who have made the following suggestions:
Consultant A: The transfer should allow the student to buy her initial bundle.
Consultant B: The transfer should allow the student to get her initial level of utility.
Consultant C: The government should give her a transfer of 20.
a.Using the expenditure function,find the amount of the transfer implied by consultant A.
b.Find the amount of the transfer implied by consultant B.
c.Determine whether the consumer is better or worse off from Consultant C's suggestion than before the price increases.

Correct Answer:

verifed

Verified

a.One trick when the utility and prices ...

View Answer

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents