1. Suppose that the following graph represents the optimal consumption bundle of a typical con- sumer, with an income of 80, facing prices PX = l and Er = 1 and with utility U=XY. E} (a) Now, let income remain xed let prices rise so that Px = 2.Py : 4. Illustrate the new budget line and draw a sample indifference curve to showr the new equilibrium bundle. E {b} Let income be indexed to the cost of living so that budget line shifts out just enough that the old bundle [at the original prices! above] is just acndable. In other words. let income increase to 240. is the old bundle still the optimal choice at the new income level and new prices? Has utility increased above that of the original consumption bundle? Explain using a diagram. E {13) Suppose that prices are now P}; = 2,.Py = 2, and income has increased to 160 {so that both income and prices have exactly doubled over the original levels). Is the old bundle optimal now? Has utility increased above that of the original consumption bundle