Question: 1) Consider a consumer who consumes only and . The price of falls. a) On a graph with on the horizontal andon the vertical axis,

1) Consider a consumer who consumes only and . The price of falls.

a) On a graph with on the horizontal andon the vertical axis, illustrate the change in this consumer's budget constraint assuming exogenous income I.

b) Illustrate income and substitution effects for assuming that both goods are normal.

c) Can you tell whether the cross-price demand curve for is upward or downward sloping?

2) Suppose your utility function is given by u(x1,x2) = min(3x1,5x2) . What is your demand function for in terms of income and prices?

3)Imagine a situation where an economic policy results in a deadweight loss. Explain the situation intuitively how the dead weight loss can be reduced/ eliminated.Use graphs to support your explanation.

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