Mary has a utility function 110:, y) = Zlnx + 4y. In the initial situation: p2 = 2,193, = 4, M0 = 100. In the new situation: 19; = 3,1931, = 3,M1 =…

/in /by

a) Calculate the utility level ???????? for the initial situation.

b) Calculate the expenditure minimizing amount to obtain utility ???????? at the new prices.

(c) Use your findings from (a) and (b) to calculate the CV from the change.

(d) Consider the alternative situation, where ???????????? ???? 3, ???????????? ???? 4, ???????? ???? 100. Calculate the CV from the change.

(e) Based on what you know about the utility function, do you expect the CV in part

(d) to be smaller, larger, or equal to the change in CS computed using the demand curve for good x?

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