Suppose that a couple receives utility from their family’s consumption, c, and their child’s private education, z (think of z as quality, not years of education). The couple's actual utility function is u c z c z ( , ) ( ), 0 . The price of consumption is $1/unit and that of z is p. The couple’s income is I. Consequently, their budget constraint is given by:///////Let the utility function over two goods be given by the following: 0.5 0.5 1 2 1 2 u x x x x ( , ) = State the Slutsky equation for the effect of a change in 1 p on the amount demanded of 1 x . Identify income and substitution effects
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