Suppose a consumer has income of $3,000 that he only spends on wine and cheese. Suppose that wine costs $3 a glass and cheese costs $6 per pound. a. Draw the consumer's budget constraint. Put wine on the y-axis and cheese on the x-axis. What is the slope of his budget constraint and what does it tell us? b. Draw a consumer's indifference curves for wine and cheese. Put wine on the y-axis and cheese on the x-axis. Describe and explain the four properties of these indifference curves. c. Pick a point on the indifference curve for wine and cheese and show the marginal rate of substitution. What does the marginal rate of substitution tell us? (NOTE: you don't have to pick actual numbers on the indifference curve for the marginal rate of substitution. Just identify where the marginal rate of substitution is and what it tells us). d. Show a consumer's budget constraint and indifference curves for wine and cheese. Pick a point on the budget constraint and show the optimal consumption choice using indifference curves (again, you don't have to use actual numbers). If the price of wine is $3 a glass and the price of cheese is $6 a pound, what is the marginal rate of substitution at this optimum? (HINT: what does the marginal rate of substitution equal at the optimum?) e. What would happen to the consumer's budget constraint if the price of cheese increased to $10 per pound (maybe because ethanol subsidies are increasing the price of corn used to feed cattle), but her income remains at $3,000 and the price of wine remains at $3 per glass? What would happen to her budget constraint if the price of wine remained at $3 per glass and the price of cheese remained at $6 per pound, but she got a big raise at work and her income is now $6000 ? Draw both budget constraints to answer the