Question: 3. (25 points) A consumer's preferences between goods 1 and 2 are represented by the utility function u(T1, 12) = 31 + 2. Suppose the

3. (25 points) A consumer's preferences between goods 1 and 2

3. (25 points) A consumer's preferences between goods 1 and 2 are represented by the utility function u(T1, 12) = 31 + 2. Suppose the price of good 1 is $2 and the price of good 2 is $1. The consumer's income is equal to $10. Suppose the price of good 1 decreases to $1. Calculate the magnitudes of the compensating and equivalent variations. Illustrate your answer with a graph and explain

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