Howard spends his time either watching movies (x) or listening to the songs - MP3 downloaded from the Internet (y). His preferences are given by: U(x, y) = 4lnx + lny. His total income is m = 100, the price of MP3 is one dollar, and the price of a movie was ten dollars, but is now five.

1. By how much does the "consumption" of movies changes due to the price drop?

2. Are movies normal or Giffen goods? Explain why.

3. By how much x change because movies are cheaper relative to MP3? (find substitution effect)

4. How about the effect of increased purchasing power of Benjamin's income? (find income effect)

5. Is the income effect in the prior part positive or negative? Why? (Hint: is a movie a normal or inferior good?)