The consumer has an income of I and the prices of the two goods x and y are px and py respectively.

Find the expenditure necessary to achieve a utility level of 2000, when the prices are px = 5 and py = 4 and when = = 0.5

Suppose you want to increase the consumer's utility from 2000 to 2800. You have two alternatives. An income subsidy and a price subsidy for the consumption of good x. Recommend one of the two alternatives by calculating the total size of the subsidy government has to spend.

How would the costs of the two subsidy alternatives change if the relative importance of the two goods were = 0.75 and =0.25