Problem 1 Text: A family has to decide how much of their monthly income to spend on good 1 and good 2. Suppose that this household has a fixed income of $3600 per month. Further, suppose that the price of good 1 is p;=512 and the price of good 2 is p,=56. Finally, suppose that the tastes of the household i 3 are described by the utility function u(xy, x;) = xJx3, where x; denotes the quantity of good 1 and x, the quantity of good 2. Questions: 1. Inagraph with good 1 on the horizontal axis and good 2 on the vertical axis, what is the value of the vertical intercept of the budget constraint? 2. Inagraph with good 1 on the horizontal axis and good 2 on the vertical axis, what is the value of the horizontal intercept of the budget constraint? 3. Do the indifference curves of the household intersect the axes? a. Yes, they intersect both axes No, they do not intersect the axes They intersect only the vertical axis a n o They intersect only the horizontal axis 4. Do the tastes of the household satisfy the 5 standard assumptions about tastes introduced in the lectures? a. No, monotonicity is violated b. No, convexity is violated c. Yes, theydo d. There is not enough information to answer 1 3 1: 1 What is the value of the MRS at bundle (1,9)? [Hint: MU, = %xl_ Exg and MU, = %xfxf. Note: When asked the value of the MRS at a given bundle, please insert a negative number if you find that the MRS is negative.] What is the optimal quantity of good 1 purchased by the household? What is the optimal quantity of good 2 purchased by the household? Now suppose that the government introduces a voucher system to support families whose monthly income is lower than $6000. Vouchers have a dollar value that can be used to buy good 1 as if they were cash, but they cannot be used for anything else. In particular, they cannot be used to buy good 2. Suppose that this family receives $1800 in vouchers per month. What is the optimal quantity of good 1 purchased by the family after the introduction of the voucher system? What is the optimal quantity of good 2 purchased by the family after the introduction of the voucher system