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6. The consumer’s demand for good X is determined by the function X* (Px, M) = M / 10Px , where Px denotes the price per unit of good X. Consumer’s income is 1600 euros, the price per unit of good X is 5 euros. Suppose that the price per unit of good X decreases by 3 euros (thus, the new price per unit of good X is 2 euros).

a) Find the total change in the quantity of good X demanded by this consumer (which is caused by this price change)?

b) Find the substitution effect associated with this price change by applying the Slutsky approach.

c) Find the income effect associated with this price change by applying the Slutsky approach.

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Divya Singh
Divya SinghLv10
28 Sep 2019

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Related questions

Suppose that consumer’s preferences are described by the utility function U(x; y) = 5x + y, where y denotes the quantity of good Y and x denotes the quantity of good X that the consumer consumes. Suppose also that consumer’s income is 600 euros, the price per unit of good X is 20 euros and the price per unit of good Y is 10 euros. Find the optimal quantity of good X and good Y for this consumer.in given conditions.

Suppose that a consumer's utility is described by the following function: U(x,y) = x2y, where x is the amount of good X that the consumer consumes, and y is the amount of good Y that the consumer consumes. Consumer's income is 360 euros. Suppose that the price per unit of good X is currently 6 euros and the price per unit of good Y is currently also 6 euros. Suppose that the Government is planning to introduce a tax per unit of good Y, which will result in an increase of the price of good Y from 6 euros to 12 euros (for the consumer). Suppose that the price of good X will not change.

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Demand for bicycles in the Netherlands is given by

Q = 2, 000 + 15Y − 5.5P
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