7) A consumer spends all of his money only on goods X and Y (Px = $2 and Py = $1) and has $24 of income. a. (3) Graph his budget line labeling endpoints and derive the slope: Slope = - 1/2 Y 8 x 2 = 16 241 24- 16 : 8 I 24 8 x 1 = 8 Py 201 12 8 X 4 I = 24 10 12 14 16 20 24 24 Px 2 = 12 - = 24 The government decides to subsidize good X at $1.00 per unit. b. (2) Graph his new budget line above. He then buys 6 units of X. P x = 2 - 1 = 1 c. (3) Derive how much of good Y he buys and how much he is subsidized in dollars. Mark his consumption points on his budget line. x = 6 then y= 18 d. (4) Instead of the per unit subsidy of 1$, the government decides to give him in cash how much they were subsidizing him before (cash equivalent). Graph the consumer's new budget line including endpoints. e. (5) Prove whether the consumer prefers the per unit subsidy or the cash equivalent. (There is more than one way you can do this.)