6 | Page Question Four - Consumer Behaviour (15 Marks) (a) Copy the set of axis below into your answer book and show a utility maximizing consumer with well-behaved preferences consuming a combination of good X and good Y. (2 marks) Good Y Good X (b) Show the effect on your diagram of a decrease in the price of good Y, when good Y is an inferior (but not a Giffen) good. Be sure to explain the income and substitution effects. (8 marks) Assume you are tutoring a friend of yours who has not done enough study for her ECON 207 term test. She is struggling to calculate the decomposition bundle. (c) Explain to your friend what a decomposition bundle is. (1 mark) Your friend has managed to work out that a consumer with the utility function U(X, Y)=XY consumes a best affordable bundle of (8,5). There is then a price change for one of the goods, after which the consumer's MRS is Y=3X. (d) Show your friend how to calculate the decomposition bundle. (4 marks)