ah (d) (Extra credit) Show that (3) and an assumption 0, then it's likely but not certain that abaw du 6 4. Simple comparative statics. (a) Suppose the price p of b increases. (In this part, it's fine to consider just direct (substitution) effects. That is, you can ignore income effects. In other words, you 3 can me that the increase in pis small enough and/or the share of bin total expenditure is small ettongh that we can ignore changes in the marginal utility of c.) i. Intuitively, why do we expect b* to fall when p increases? That is, why do we p db expect po. What will happen in Equation (1)? How do we know that this is no longer optimal for the household? B. How can the household adjust its optimal choice to bring Equation (1) back into balance? What will happen in Equation (1) to ensure a new equilibrium is found? Hint: remember our assumptions on ?u/ah2 and 8PU/8c? What will happen to au/ah and au/ac as the household re-optimizes? db db iii. Extra credit: formally derive and show that 0, then it's likely but not certain that abaw du 6 4. Simple comparative statics. (a) Suppose the price p of b increases. (In this part, it's fine to consider just direct (substitution) effects. That is, you can ignore income effects. In other words, you 3 can me that the increase in pis small enough and/or the share of bin total expenditure is small ettongh that we can ignore changes in the marginal utility of c.) i. Intuitively, why do we expect b* to fall when p increases? That is, why do we p db expect po. What will happen in Equation (1)? How do we know that this is no longer optimal for the household? B. How can the household adjust its optimal choice to bring Equation (1) back into balance? What will happen in Equation (1) to ensure a new equilibrium is found? Hint: remember our assumptions on ?u/ah2 and 8PU/8c? What will happen to au/ah and au/ac as the household re-optimizes? db db iii. Extra credit: formally derive and show that