Suppose that a consumer's preferences can be represented by the utility function u(x1,x2)=min{2x1,x2}. Suppose that the originally the price of good one is $2, the price of good two is $2 and the consumer's income is $12. Furthermore, suppose the price of good one then increases to $4.
Calculate the substitution effect and the income effect of the price increase on good one

Q&A Education