Consider preferences over x and y given U(x,y) = min(x,2y) and suppose that income is 60. Let the initial prices be px=1 and py=2.
1. What is the initial optimal consumption?
2. Suppose px increases to px=2. Find the total change in the consumption of x and y.
3. Decompose the total effect into its substitution effect and its income effect.
Please do each step of every question for a complete understanding of the reasoning behind the steps.
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Consider preferences over x and y given U(x,y) = min(x,2y) and suppose that income is 60....
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