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3. Eddie is a San Fianciscobased journalist and sometimes host of an alien symbiote. His utility from consuming pencils (p) and sharpies (s) is U(p,
3. Eddie is a San Fianciscobased journalist and sometimes host of an alien symbiote. His utility from consuming pencils (p) and sharpies (s) is U(p, s] = 2p+2s. Assume that the price of pencils is pp = $1 and the price of sharpies is 10,, = $2. Eddie's income is $20. (a) Based on Eddie's utility function, are Eddie's indifference curves straight lines or bowed in towards the origin? Explain. (b) What is the slope of his indierence curves, i.e. compute the MRS? (c) Draw Eddie's budget constraint. Place pencils on the I-axis. Indicate his optimal bundle and place one indifference curve through it. \"'hat is his utility from this bundle? Be sure to label both intercepts for the indifference curve you draw. (d) Suppose the price of pencils increases to $4. Draw the new budget constraint on the same graph above and indicate Eddie's new optimal consumption bundle. Draw a second indifference curve through this bundle. What is his utility from this bundle? As above, be sure to label both intercepts for the indierence curve. (e) Indicate the income and/ or substitution effects on your graph by including a hypothetical budget constraint, L'. (You should be able to identify exactly how many fewer pencils Eddie buys due to the income and for substitution effects.) Be sure to label the intercepts of the hypothetical budget constraint L
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