Question #148760
A maximizing consumer with preferences u = x1/2y1/2 has an income of 50 dollars. Prices are pX = 1 and pY = 2. At CostCo the price of good X is pX = 0.25. Provide an Indifference Curve Diagram to illustrate and quantify the Income Effect and Substitution Effect for this price change. The horizontal intercept of her compensated budget line is equal to
1
Expert's answer
2020-12-06T17:49:42-0500

Income Effect



Substitution Effect


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