Suppose that a consumer's utility is described by the following function: U(x,y) = x2y, where x is the amount of good X that the consumer consumes, and y is the amount of good Y that the consumer consumes. Consumer's income is 360 euros. Suppose that the price per unit of good X is currently 6 euros and the price per unit of good Y is currently also 6 euros. Suppose that the Government is planning to introduce a tax per unit of good Y, which will result in an increase of the price of good Y from 6 euros to 12 euros (for the consumer). Suppose that the price of good X will not change.
Find the minimum compensation (compensating variation), which Government should pay to the consumer (in case of such policy) if it wants to maintain the consumer's well-being at the pre-policy level.
Suppose that a consumer's utility is described by the following function: U(x,y) = x2y, where x is the amount of good X that the consumer consumes, and y is the amount of good Y that the consumer consumes. Consumer's income is 360 euros. Suppose that the price per unit of good X is currently 6 euros and the price per unit of good Y is currently also 6 euros. Suppose that the Government is planning to introduce a tax per unit of good Y, which will result in an increase of the price of good Y from 6 euros to 12 euros (for the consumer). Suppose that the price of good X will not change.
Find the minimum compensation (compensating variation), which Government should pay to the consumer (in case of such policy) if it wants to maintain the consumer's well-being at the pre-policy level.
