If Bernice (whose utility function is min{x, y}, where x is her consumption of earrings and y is money left for other stuff)had an income of $10 and was paying a price of $3 for earrings when the price of earrings went up to $4, then the equivalent variation of the price change was
A)$2.
B)$2.50.
C)$5.
D)$1.
E)$2.25.

Question

Quizplus · Accepted Answer

The equivalent variation is the amount of money that would need to be taken away from Bernice before the price change to leave her as well off as she would be after the price change. Initially, she could buy 3 earrings and have $1 left. After the price increase, she can buy 2 earrings and have $2 left. To be as well off as after the price change, she would need $8 before the price change, which is $2 less than her original income of $10.

If Bernice (Whose Utility Function Is Min{x, Y}, Where X