Find the income effect associated with the price change

Reference no: EM132207535

Question: 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.

Reference no: EM132207535

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