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Suppose that a consumer has a utility function u(x ,x ) = x1^1/2 x2^1/2 . He originally faces prices (1, 1) and has income 100. Then the price of good 1 increases to 2. What are the compensating and equivalent variations?
We know that the demand functions for this Cobb-Douglas utility function are given by
x1 = m/2p1
x2 = m/2p2
How to find change in consumer surplus can u give me detailed steps? I was thinking to find the x and y intersect I put quantity of p1=0 then the denominator would be 0 right? How can I get the answer?
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