Use the following information to answer questions 1-3:

Joe considers beer and soda to be perfect substitutes at a rate of 1:2; that is, he always receives the same utility if he has one beer or two sodas to drink. He spends $12 a day on drinks, and beers cost $3 while sodas cost $1 each. However, one day the price of beers decreases to $2; there is no change in his budget.

Question 1

Short Answer: How does consumption change when the price of beers changes? What is Joe's new level of utility?

Question 2

Short Answer:How much must Joe's budget decrease to return him to the original utility level?

Question 3

Short Answer: Now assume the price of beers returns to the original price of $3. Describe the demand curve for soda, holding the price of beer and income constant.

Questions 4 - 9

Use the following scenario to answer questions 4-9:

Harry consumes two goods: books and coffee. Harry earns an income of $40 per month. He can spend his entire income on books and get 5 books, or he can spend his entire income on coffee and get 20 cups.

Question 4

The table, below, shows the bundles that Harry can afford with his income. Calculate the answers for a.-d. in the table with quantities that will exhaust Harry's income.

Books	Coffee
1	a.
b.	0
c.	8
2	d.

Question 4 options:

Question 5

Harry receives a bonus, and his income increases to $80 per month. What is the new equation of his budget constraint? Reduce the equation to the simplest form.