Slutsky equation Consider a utility function U (Kn, X3) = XAXB. Let Pn=$3 and PB=$2, and income is set at M=$40. Suppose PB falls to P3' =1. 1 - Before the price change. what was 1; and 15-. the optimal consumption bundles? Sketch the original budget line and label the point (x5. 1:5) as A. Let x,' be on the horizontal axis. 2_ If. after the price change. income changed so that the original optimal bundle is just as affordable. What is the new income. of? At (pd. p.m').whatis the ne'nr optimal bundle (acids)? Sketch the budget line associated with (pd, pg, 111'). Label the point (xi, 1,3) as B. 3. Does the substitution effect result in more x3? How many more or fewer? After the price change. how much x1. and x3 are actually bought, (ag)? Sketch the budget line 4. . . _ ass oaated With (p4. pig. in]. Label the pomt (1",xg) as C. 5 Along the vertical axis, label the income effect, the substitution effect. and the total effect on the ' demand for 155. 6. The income effect ofthe fa I] in pH is the same as an (increase, decrease] in income of $_. [Choose "increase" or "decrease" and supply the missing value.) Does the income effect result in an increased consumption ofxg? How much more? 7. Does the substitution effect of the fall in pa make the consumer co nsnnie more or fewer xA? How much more or fewer? Does the income effect of the fall in the price of x3 make the consumer consume more or fewer 1:41? What is the total effect of the change in the price of its on the demand for xA