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Approximate change in consumer surplus

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The utility function from consuming x and y is given by: U(x, y) = x .2y .3 . The respective marginal utilities are: MUx = 0.2x -.8y .3 and MUy = 0.3 x .2y-.7. Income is $860, and the price of y is: Py = $1.

a. What is the demand function for x?

b. If the price of x decreases from $20 to $16, what would be:

B1. The substitution effect (on the quantity of x)

B2. The income effect (on the quantity of x)

B3. The total effect

B4. The compensating variation

B5. The approximate change in consumer surplus (assume linear demand for this question)

Reference no: EM133065210

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