Part 1

Part 2

Consider an individual with preferenes represented by the following utility function: U(x1,x2)=x131x232 The individual faces prices: p1=0.75;p2=1 And has income: M=250 a. [5 points] What is the consumer's optimal bundle at the original set of prices and income? b. [5 points] What utility does the consumer achieve at the original set of prices and income? c. [5 points] The price of good 1 increases to 3.0. What bundle does the consumer choose at the new price of good 1 and original income? d. [5 points] What utility does the consumer achieve at the new price of good 1 and original income? e. [5 points] How much does the consumer spend to achieve the new utility at the original prices? [Write this answer in the space below.] f. [5 points] What is the consumer's equivalent variation of this price change? For the previous question, draw a diagram indicating: a. [5 points] The uncompensated demand curve for good 1. Label this curve "A" b. [5 points] The compensated demand curve for good 1 , where the consumer has been compensated to the original utility. Label this curve "B" c. [5 points] The compensated demand curve for good 1 , where the consumer has been compensated to the new utility. Label this curve "C" d. [5 points] The area representing change in consumer welfare you found in the prior question (shade the appropriate area). [Upload your work here, or (preferably) at the end of the assignment.] Consider an individual with preferenes represented by the following utility function: U(x1,x2)=x131x232 The individual faces prices: p1=0.75;p2=1 And has income: M=250 a. [5 points] What is the consumer's optimal bundle at the original set of prices and income? b. [5 points] What utility does the consumer achieve at the original set of prices and income? c. [5 points] The price of good 1 increases to 3.0. What bundle does the consumer choose at the new price of good 1 and original income? d. [5 points] What utility does the consumer achieve at the new price of good 1 and original income? e. [5 points] How much does the consumer spend to achieve the new utility at the original prices? [Write this answer in the space below.] f. [5 points] What is the consumer's equivalent variation of this price change? For the previous question, draw a diagram indicating: a. [5 points] The uncompensated demand curve for good 1. Label this curve "A" b. [5 points] The compensated demand curve for good 1 , where the consumer has been compensated to the original utility. Label this curve "B" c. [5 points] The compensated demand curve for good 1 , where the consumer has been compensated to the new utility. Label this curve "C" d. [5 points] The area representing change in consumer welfare you found in the prior question (shade the appropriate area). [Upload your work here, or (preferably) at the end of the assignment.]