Exam 13: Consumers Surplus

If there is a price increase for a good that Susan consumes, her compensating variation is the change in her income that allows her to purchase her new optimal bundle at the original prices.

Bernice's utility function is U(x, y) = min{x, y}. The price of x used to be 3 but rose to 4. The price of y remained at 1. Her income is 12. She would need an income of $15 to be able to afford a bundle as good as her old one at the new prices.