4. In 2000 Orlando drinks gallons of milk (x) and pints ofjuice (y). His preferences on juice (x) and milk (y) can be represented by the utility function ujw = W + My. The I 1 associated Marshallian demands are x = and y = a) 2P 2P I y Suppose that 3%: $1.25, \"Pry: S4 and I = $200. Use the demand curves to find his best bundle. Illustrate the bundle and label it A in the diagram below. Include in your diagram an indifference curve through his best bundle. By 2010 the price of a pint of milk has risen to $5 and juice had remained constant at $4. b) C) d) If Orlando would like to continue to purchase the bundle ofjuice and milk that he purchased in 2000 then how much money will he need in 2010? What is the rate of inflation for beverages between 2000 and 2010? Suppose that in 2010 Orlando's income is adjusted for the rate of inflation that you calculated above. Illustrate the budget line associated with this level of income in your diagram above. Will Orlando purchase the same bundle of goods in 2010 that he purchased in 2000? Briefly explain your answer. Is he better or worse off if his income is adjusted for inflation? Define an "ideal cost of living adjustment\"? Is the income adjustment in part (f) an "ideal COLA\"? Find Orlando's Hicksian demand functions for milk and juice. Use your compensated demand functions to find the cheapest bundle on the indifference curve through bundle A. Illustrate this bundle in your diagram and label it B. Define compensating variation. What is the compensating variation to the price change between 2000 and 2010? Illustrate this value in your diagram