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5. (10 points) Jenny buys both organic and regular eggs, but she sees regular eggs as an inferior good and organic eggs as a normal
5. (10 points) Jenny buys both organic and regular eggs, but she sees regular eggs as an inferior good and organic eggs as a normal good. Sujppose the price of regular eggs becomes lower. Put regular eggs on the x-axis. Explain each change/effect's direction. For each of the following cases, explain the direction (sign) of the price effect, income effect, and substitution effect of regular eggs in detail. Then, show those effects in a graph. Make sure you label the following: BC1. (old budget contraint), BC2 (new budget constraint), U1 (old indifference curve), U2 (new indifference curve), Point A Cold optimal bundle). Point B (decomposition bundle). Point C (new optimal bundle). Example graph is below. 6. (15 points) The utility function of a consumer is given as follows. U(x,y)=x2y3MUx=2xy3 and MUy=3x2y2. a. (10 points) Derive the demand functions for good x and good y (Note: You should solve by leaving the prices as they are, not as they are fixed at some values). b. (S points) Using your answers in part (a), draw a demand curve for good y when income is 100. Draw an Engel curve for good x when price is 2 dollars (Pick a few points for drawing a graph)
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