Question 12 · Microeconomía II UPF 2016

Question 12 (4 points). Slutsky compensated income

Suppose that when Maria faces an income of $m = 120$ and prices $p_1 = 40$ and $p_2 = 40$, her optimal consumption bundle is $x^* = (x_1, x_2) = (1, 2)$. If the price of good 1 falls to $p_1' = 20$ while $p_2 = 40$ and initial income remain unchanged, what level of income $m'$ leaves Maria's purchasing power constant in the sense of Slutsky?