We wish to model a consumer's choice between a product (call it good X) at different prices, and the composite good, priced at $1 per unit.

A.Suppose a consumer has a weekly disposable income of $1,200 and the price of good X is initially $2.00 per unit. Draw up a budget constraint showing this consumer's weekly feasible set. Put good X on the horizontal axis and the composite good on the vertical axis.

B.If this consumer has a Marginal Rate of Substitution (MRS) of Y/2X, what is the optimal consumption bundle of good X (in units) and composite good (in dollars) in this bundle? Show this bundle on your diagram from (a) with a stylized version of the indifference curve

C.Suppose the price of good X increases to $2.50 per unit. What is the new optimal consumption bundle for this consumer? Show the new budget constraint and this new optimal bundle on your diagram from (a) with the aid of a stylized indifference curve

D.Illustrate the income and substitution effects that result from this price change on your diagram from (a)

E.Draw the price consumption curve (PCC) in your diagram from (A).

F.On a separate diagram, draw the consumer's demand curve for good X, for the two prices you can see.

G.Explain why, when the indifference curve is convex to the origin, thesubstitution effectwill always result in the consumer wanting less of good X, as the price of good X rises. You may use your diagram from (a), or draw a separate, fresh diagram (in line with the *Note below) to answer this part of the question. In your answer, you donotneed to discuss the income effect, as this question only requires you to investigate the substitution effect.