1. An individual's utility function is U(B, C) = B*C.

a) Calculate the marginal rate of substitution, assuming that B are on the vertical axis and C on the horizontal axis.

b) The individual's income is 120, the price of B is 2, and the price of C is 1.

How many units of B and C does the individual consumer to maximise her/his utility?

2. An individual with the utility function (, ) = 2 maximizes utility subject to the budget constraint 600 = 2x + 4y

a) Compute the optimal consumption ( and ), and the utility level thereof.

b) What happens to and when the price of y decreases to 3?

3. From the answers to Question 2, Compute the income and substitution effect using both c) the compensated method; and d) the uncompensated method.