4.29. Brian consumes units of electricity (E) and a composite good (Y ), whose price is always 1. He likes both goods.

In period 1 the power company sets the price of electricity at $7 per unit, for all units of electricity consumed. Brian consumes his optimal basket, 20 units of electricity and 70 units of the composite good.

In period 2 the power company then revises its pricing plan, charging $10 per unit for the first 5 units and $4 per unit for each additional unit. Brian’s income is unchanged. Brian’s optimal basket with this plan includes 30 units of electricity and 60 units of the composite good.