Question 3 9 marks (3, 3, 3) A consumer has the following utility function U (X1. X2) = (X1 + 3) (X2+ 4) Prices of the two goods X1 and X2 respectively are p1 and p2 and the consumer has income m. We assume that all prices and income are strictly positive. Furthermore, throughout this question we assume that m is high enough so that both goods are consumed in strictly positive amount in equilibrium. (a) (3 marks) Solve the consumer's optimization problem and express the demand for the two goods in terms of prices and income. (b) (3 marks) Compute the missing values of elasticities in the following table assuming M = 10, p1 = 2, and p2 = 1. Show your work. Income elasticity Absolute value of own price elasticity (c) (3 marks) While X2 is produced locally, X1 is transported from a different region. Assume p2 = 1. Building a new railroad (that connects the regions) will reduce transportation cost which in turn will reduce the price of good 1 from p1 = 2 to [31 = 1. Railroad will be funded by taxes which will reduce each consumer's disposable income from m = 10 to m = 10 T. A utilitymaximizing consumer will accept higher taxes a_s_ _|(_)_ng_a_s_ TS