Question 2 and 5 are multiple choice and the rest are free response. Thanks!

1) Imagine that two goods are available to you: cars (X) and bikes (Y).You like cars 200 times more than bikes.If your transportation budget is $20,000 per decade, the price of cars is $20,000 per unit per decade, and the price of bikes is $150 per unit per decade, what is the value of the MktRS (market rate of substitution)?

2) Michael has Perfect Substitutes Preferences. His budget is M. With current prices P_Xand P_Y, his optimal bundle is (X = 15, Y = 0). If P_Xdoubles, what happens to his optimal consumption of Y?

a) We do not have enough information to know that. It might remain 0, it might become positive.

b) It becomes positive. The increase in P_Xmakes the Market Rate of Substitution increase, and, since the MRS_XYremains constant, Michael has now incentive to spend everything on good Y.

c) It becomes positive. Actually, after the increase in P_X, Michael buys a little of both goods.

d) It remains 0. The increase in P_Xmakes the Market Rate of Substitution increase, and, since the MRS_XYremains constant, Michael has even more incentive to spend everything on good X.

3) Imagine that two goods are available to you: hamburgers (X) and hot dogs (Y).You like hamburgers and hot dogs equally well.If your fast food budget is $50 per month, the price of hamburgers is $6 per unit, and the price of hot dogs is $4 per unit, what is your optimal consumption of hot dogs?

4) Imagine that two goods are available to you: servants (X) and robots (Y).You like servants three times as much as robots.If your domestic help budget is $4,000 per month, the price (wage) of servants is $1500 per person per month, and the price (rent) of robots is $400 per unit per month, what is your optimal consumption of servants?

5) The graph shows Victor's current budget line (BL) and two of his indifference curves (IC1, IC2). Select the correct option:

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