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Kristina consumes only goods 1 and 2. Her income is $300 and her utility function is u(x1, x2) = x1x22 . The price of good 1 is 1. The price of good 2 used to be 1 but is now 2. How much would Kristina pay to avoid the price change? What is the technical term for this amount? How much extra income would she require in order to consent to the price change? What is the technical term for this amount? Give economic intuition for why one of these amounts is higher than the other.
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Exponential inter-temporal utility function question
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