A consumsumer of two goods has indirect utilityv(p, w) =√w-1/2P₁ + P₂(a) Find the indirect money-metric utility e(p, v(p, w)).(b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2)to (p', w')= ((1,9), 5).can you explain the notation please break it down each part of it, please teach Howdo you know where to place the values?The indirect money-metric utility e(p, v(p, w)) can be calculated as follows:e(p, v(p, w)) = v(p, w) - ((p1* w1) + (p2 * w2))plugging in the values from the problem, we get:e(p, v(p, w)) = (sqrt(w))/p1^-0.5+p2^-0.5- ((44) + (9 * 5))e(p, v(p, w)) = 2 - 41CV = 2e(p, v(p, w)) = -39The compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9),5) can be calculated as follows:CV = e(p', w')- e(p, w)plugging in the values from the problem, we get:CV-39 (-41)This means that the consu would be willing to pay up to $2 in order to maintain their originallevel of utility.

The indirect money metric utility function is the minimum cost of purchasing bundles of goods at…

A consumer of two goods has indirect utility v(p, w) = P₁ + P₂ (a) Find the indirect money-metric utility e(p, v(p, w)). (b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9), 5).

A consumer of two goods has indirect utility v(p, w) = P₁ + P₂ (a) Find the indirect money-metric utility e(p, v(p, w)). (b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9), 5).

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

A consum
sumer of two goods has indirect utility
v(p, w) =
√w
-1/2
P₁ + P₂
(a) Find the indirect money-metric utility e(p, v(p, w)).
(b) Calculate the compensating variation associated with the change from (p, w) = ((4,4), 2)
to (p', w')= ((1,9), 5).
can you explain the notation please break it down each part of it, please teach How
do you know where to place the values?
The indirect money-metric utility e(p, v(p, w)) can be calculated as follows:
e(p, v(p, w)) = v(p, w) - ((p1* w1) + (p2 * w2))
plugging in the values from the problem, we get:
e(p, v(p, w)) = (sqrt(w))/p1^-0.5+p2^-0.5- ((44) + (9 * 5))
e(p, v(p, w)) = 2 - 41
CV = 2
e(p, v(p, w)) = -39
The compensating variation associated with the change from (p, w) = ((4,4), 2) to (p', w')= ((1,9),
5) can be calculated as follows:
CV = e(p', w')- e(p, w)
plugging in the values from the problem, we get:
CV-39 (-41)
This means that the consu would be willing to pay up to $2 in order to maintain their original
level of utility.

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