VUCB \"U11 '1' n' 3. So far we have covered the case Where there are two goods in the consumer's bundle. The simplicity allows us to draw a difference curve, budget line a 2-D graph, and calculate consumer surplus as the area under the curve. What challenges Will We face if We study the case with three goods in the consumer's bundle? I). So far we have assumed that the marginal utility is diminishing: a pizza eaten when you are hungry yields much more utility than the second pizza you eat (which yields more utility than the third pizza, and so forth). However, we can have a special case where the marginal utility is constant, and that two goods are perfectly substitute in the consumer's bundle. For example, I like Coca and Pepsi, and I never get fed up with it. Moreover, I like Coca as much as I like Pepsi. Suppose that my marginal utility of consuming Coca and Pepsi are both constant and equal to 1. Moreover, the price of Coca is $1 per bottle, and the price of Pepsi is $2 per bottle. I have $10 dollar per week to spend on Coca and Pepsi. How many bottles of Coca and Pepsi should I drink in a week to maximize my utility? c. In what situations do the substitution effect and the income effect work in the same direction to produce a downward-sloping demand curve? In what situations do they have opposing effects? (1. Sometimes the marginal utility can be increasing, depending on the goods in question. Can you come up with one example of increasing marginal utility (that is, consuming the second quantity of good X yields more marginal utility than the rst quantity of good X?]