# Consider the following prices and income: px =\$2 and py

Consider the following prices and income: px =\$2 and py =\$3 I=\$156 Let A denote the bundle (24,36). (a) Draw the budget constraint given prices and income above (making clear what are the quantities of the other good when x =0 or y =0, and mark A in the graph). What is the equation for the budget line? (b) Consider a change in prices: px =\$3 and py =\$1 Draw the new budget constraint (and the relevant points) and present the equation for the new budget line. i. Assume an agent has strongly monotone preferences and argue why A will not be an optimal choice under the new prices. (c) Consider now prices px =\$3 and py =\$2.5 How much income a consumer should receive so she is able to afffford bundle A under the new prices? Draw the budget constraints for I=\$156 and for the adjusted income (and the relevant points). (d) Consider now a difffferent situation. Rather than having income I=\$156, the consumer has an endowment (x,y)=(3,50). For the original prices (px =\$2, py =\$3), the endowment is worth \$156 (=\$2 × 3 + \$3 × 50). Now consider the same prices from item (b), and draw the consumer’s budget constraint (and the relevant points). • Will the consumer be able to purchase bundle A now? Discuss.