1. Assume a consumer consumes only shoes and bags. Price of shoes, PS is $80 and price of bags, PB is $50, and income of the consumer is $1600.

Write down this consumers Budget constraint. Draw the BC and mark the x and y coordinates. What is the slope of this BC? (10 points)

If the income increases to $2400, show graphically how the BC changes. Mark the x and y coordinates. Write down the new BC. What is the slope of the BC? (10 points)

If instead the price of shoes increases to $100, show graphically how the BC changes. Mark the x and y coordinates. Write down the new BC. What is the slope of the BC? (10 points)

2. A consumer has $120 to spend between movies and books. The price of a movie is $10 and that of a book is $15. Given below is the Marginal Utility from the consumption of books and movies. How many books and movies will the consumer purchase to maximize her satisfaction? Show your work. (10 points)

Number MU from Movies MU from Books 1 12 22 2 6 20 3 4 18 4 3 9 5 5 2 8 6 1 6