Question: 2. Set up a utility maximization model to think about the consumption of gasoline and other goods. Assume a utility function U = u(C, G)

2. Set up a utility maximization model to think about the

2. Set up a utility maximization model to think about the consumption of gasoline and other goods. Assume a utility function U = u(C, G) where G is the consumption of gasoline and C is the consumption of a composite good. a) The budget constraint of a representative consumer with annual income I and the price of gasoline PG can be written as C + PGG = I . Draw the budget constraint on coordinates where y-axis is C and x-axis is G. What is the slope of the budget line? b) Use an indifference curve to show the utility maximization on the diagram you draw for part (b). What would be the value of a consumer's marginal rate of substitution at the optimal point? c) After a consumer have consumption bundle (Go, Go), her marginal rate of substitution satises MRSGC

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