Question 1 Suppose there are only two goods in the economy: Yo-yos and Marbles. Bob only cares about his consumption of Yo-yos; the more Yo-yos he has the happier he is, regardless of his consumption of Marbles. In contrast, Lucy only cares about his consumption of Marbles; the more Marbles she has the happier she is, regardless of her consumption of Yo-yos. (a) Draw Bob's indifference curves, putting Yo-yos in the r-axis and Marbles in the y-axis. (b) Draw Lucy's indifference curves, putting Yo-yos in the r-axis and Marbles in the y-axis. (c) Do Bob's and Lucy's preferences comply with the property of diminishing marginal rate of substitution? (d) Are Bob's and Lucy's preferences transitive? Question 2 Matt considers Butter (#) and Sour Cream ($) as substitutes. His utility function has the form u(B,S) = BB + S, where # > 0. Suppose the price of Butter is Py = 3, the price of Sour Cream is I's = 2, and Matt has an income of M = 100 dollars to spend between Butter and Sour Cream. (a) In a well labelled diagram, draw Matt's indifference map, putting Butter in the r-axis and Sour Cream in the y-axis. Make sure to indicate the direction at which the indiffference curves increase. (b) In a well labelled diagram, draw Matt's budget set indicating the intercepts with the axes and the slope of the budget line. (c) Obtain the Marginal Rate of Substitution between Butter and Sour Cream. What would happen to the MRS if Matt doubles his consumption of Butter and Sour Cream? (d) Obtain Matt's optimal bundle when: - 8 > 3/2