An agent consumes quantity (X1,X2) of goods 1 and 2. She has utility U(X1,X2)=(1+X1)(1+X2). The prices of the goods are P1 and P2. The consumer has income m.

1. Derive the agent's demand function.

2. Are the goods complements or substitutes? Explain.

3. Suppose the consumer has income m=8 and faces prices P1=1 and P2=1. What is her utility? 4. Suppose the price of good 1 increases to P1=4 . How much extra income does the agent need to compensate her for the price rise?