1.  

Priya purchases rice (x) and lard (y) to prepare meals. Both rice and lard are priced at $1 per pound. Priya has $100 to spend on these goods. Her preferences can be represented by the utility function u(x,y) = 8ln (x) + 2in (y). To assist Priya in preparing meals, the government will provide her with 40 free pounds of lard (y). Assume that she is prohibited from selling any of this lard. Is (100, 40) the best bundle on the new budget line? Briefly explain. If Priya could sell some of her lard at $.80 per pound then would she want to do so? Briefly explain.