Compute the new equilibrium into substitution effects

Reference no: EM13721295

Please determine the accurate solution of the following Problem

Problem- Two goods. General utility function. Start at equilibrium. Let p1 increase and p2 fall at the same time.

Part 1- Find the new equilibrium and decompose into income and substitution effects.

Part 2- Now introduce a subsidy of amount s per unit of x1 purchased. Find the new equilibrium, assuming that more of x1 is purchased than was the case at the original equilibrium. Does the consumer wind up on a lower or higher indifference curve?

I want assist to compute the new equilibrium into substitution effects.

Reference no: EM13721295

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