Exercise 2 : Income and substitution effects (14 points) Edgar has the utility lnction U (x, y) = xyz, where x denotes the amount of food consumed and y the amount of clothing. Now suppose that he has an income of $72 per week and that the price of clothing is Py = $1 per unit. Suppose that the price of food is initiallny 1= $8 per unit and that the price subsequently falls to Px2= $4 per unit. a) Find the initial consumption basket A when the price of food is $8 (2 points). b) Find the nal consumption basket C when the price of food is $4 (2 points). 0) Find the decomposition (imaginary) basket B (Hicks and Slutsky methods) (4 points). d) Find the income and substitution effects on food and clothing (Hicks and Slutsky methods) (4 points). c) Find the compensating variation in income (Hicks and Slutsky methods) (2 points)