Ejercicio Exercise 12 · Microeconomía II UPF 2015

Exercise 12 (5 points). Slutsky substitution effect for perfect substitutes

Yulia's preferences are represented by the utility function:

$$U(x_1, x_2) = x_1 + x_2$$

When prices are $p_1 = p_2 = 3$, Yulia chooses the bundle $(10, 10)$. If the price of good 1 increases to $p'_1 = 4$, what is the substitution effect on $x_1$ according to Slutsky's definition?