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Substitution effect on good 1 equal to zero

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Reference no: EM132476121

Bob's utility function is u(x1, x2) = 3x1 + x2, and he has income m = 10. The price of good 2 is p2 = 1. Let p1 denote the initial price of good 1, and let p′1 denote a new lower price of good 1, so p′1 < p1.

(a) For what values (if any) of p1 and p′1 is the substitution effect on good 1 equal to zero?

(b) For what values (if any) of p1 and p′1 is the income effect on good 1 equal to zero?

Reference no: EM132476121

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