Solve the following exercises with graph:

a) Your utility function is U=XY. In period 1 your income is 500$, the price of one unit of X is 25$ and the price of one unit of Y is 5$. In period 2 Px falls to 20$ while Py rises to 8$. Determine:

1. Your best feasible bundle in period 1

2. The Consumer Price Index

b)Last year Andrew spent all his income to buy 30 units of X and 20 units of Y, when prices were, respectively, Px=20$ and Py=20$. This year, prices are Px = 30$ and Py = 5$. Assume that Andrew's preference did not change. Use the enclosed diagram to draw the old and the new budget lines and to explain whether Andrew is better off this year.

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