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 $12 and was paying a price of $4 for a pair of earrings, then if the price of earrings went up to $6, the equivalent variation of the price change would be
A)$4.80.
B)$3.43.
C)$1.71.
D)$9.60.
E)$4.11.

Question

Quizplus · Accepted Answer

The equivalent variation is the amount of money that would make Bernice as well off at the new price as she was at the old price. At the old price, Bernice could buy 3 pairs of earrings and have $0 left over. At the new price, she can only buy 2 pairs of earrings and have $0 left over. Therefore, the equivalent variation is the amount of money that would allow her to buy 3 pairs of earrings at the new price, which is $4.80.

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