Question #2

In this part you aregoing to use the concepts in the first part to analyze thefollowing scenario which has 6 parts (A through F).

Suppose our agent's income is$240. Only two goods exist for our agent, good X and good Y. Good Xcosts $10 per unit and Good Y costs $12 per unit. Assume this agenthas indifference curves that look like those typically drawn inclass.

Of the following bundles below,circle which bundle could possibly be anoptimal consumption bundle (OCB) for this agent.

(11 units X, 12 units Y)?? (12 units X, 10 unitsY)?? (13 units X, 8 units Y)

Explain how you got your answer in part (A). Why couldthe bundle you selected be an OCB, why couldn't the other bundlesbe an OCB?

Given this price change, and given the OCB you selectedabove, circle which of thefollowing bundles could be Point B (where the change between theOCB and Point B represents the substitution effect):

(10 units X, 12 units Y)?? (12 units X, 15 unitsY)?? (10 units X, 10 units Y)

Explain how you got your answer in part (C).

Bananas 20 10 10 Apples

Bananas 20 10 C A B 10 Apples