Dave has a budget of $160. Suppose Dave spends on two goods, shaving cream and shirt where the price of a shaving cream is $8 and the price of a shirt is $32. Assume shaving cream is good X and shirt is good Y.

a. Based on the information above, form an equation for Dave's budget constraint in terms of the two goods.

b. Draw the budget line showing the relevant workings for the intercepts.

c. Dave's optimal bundle occurs when he can buy 2 shirts a month. How many cans of shaving cream can he get given his budget? Show all workings clearly. Represent this information in your diagram in (b).

d. Find the marginal rate of substitution at the optimal bundle. Interpret this figure.

e. Suppose the price of shirts increases while the price of shaving cream decreases. Show what would happen to the budget lines by sketching the new and old budget lines in a new graph below.