Joe's utility function is given by U(x,y)= min[x,y]. The price of x is $4 and the price of y is $2 and Joe's income is $12. If the price of x decreases to $2 but Joe's income stays constant, then:
A)the income effect is zero.
B)the income effect is equal to 2.
C)the income effect is equal to 1.
D)the total effect is zero.

Question

Quizplus · Accepted Answer

The Answer of Joe's utility function is given by U(x,y)= min[x,y]. The price of x is $4 and the price of y is $2 and Joe's income is $12. If the price of x decreases to $2 but Joe's income stays constant, then:
A)the income effect is zero.
B)the income effect is equal to 2.
C)the income effect is equal to 1.
D)the total effect is zero.

Joe's Utility Function Is Given by U(x,y)= Min[x,y]