a) If income = 90, find the optimal quantity of the two goods. Now change income to 48 and try to solve this problem using the general method. Explain why the solution you get cannot be correct. (1 point) b) Draw an diagram with an indifference curve and a budget constraint to explain what is going on, and find the actual solution to the problem. (1 point) 6) Find the demand functions for x (ppp) andy (BePyl) assuming both x0 and yo0. (2 points) <8) Explain from these functions why it will aways be that x20, but y>0 only if a condition is met. Show that condition. Also show the demand functions for x and y if the condition is not met. Explain how this result is consistent with part a. (2 points) ‘e) Find the indirect utility function for the case where y>0 and for where y=0. (1 point) 4) Find the minimum expenditure associated with p,=2, p/=9 and a uty of 13. Explain why this answer is consistent with earier results. (1 point) 2. Given a U(s,y)=2°y", P= 1, B, =2, and I-96: €) Find the optimal (xy) and the utity from that bundle, (1 point) ») Find what happens when you change P= 8 butkeep P, =2 two different ways: 1) Keep the income il) Keep the ullty at the same level you found in (a) Do these two methods give you the same answer? Does this make sense? Explain. (2 points) ©) How much does the answer to (b) part (i) cost at the prices in part (b)? Is it more or less than 1967 Does that make sense? (1 point) 4) Use the numbers from (a) and (b) to draw a picture in the xy axis specifically showing the income and substitution effects. (2 points) 3. A.consumer has a perfect complements ullity function of the form U(x, y) = min(2x, yi2). a) Find the utility maximizing (x,y) if the price of x is $5, the income is $52, and the price of y is $2. (1 point) b) Now use a generic budget p.x + pyy =| instead of the specific prices and income to find the demands for good x (,.Py) and good y (PP) associated with the utlitys Ute, rmin(2x, y2)., Plug in the prices and income from (a) to verify that the functions gives you the correct (x,y) in the one case where you know the answer. (1 points) €) Now use the demand functions in pat bto find the utity maximizing bundle if. =8. Draw 4 graph showing both budget constraints and optimals, From this picture, identity the size of the income effect, substtution effect, and total effect. (2 points) 4) Do the expenditure minimization problem using the same utility function and find x, y* and E(P,»p,,U)., From the demand functions here, use the slutsky equation to explain why your results in (b) meke sense. (2 points)