Eric's preferences can be expressed by the utility function U = x2y2where 'x' represents t-shirts and 'y' represents jeans.He has a monthly income of $800 to spend on x and y (tees and jeans). The price of x equals $40, and the price of y equals $40.

a.Write out Eric's Budget Constraint.

b.Find Eric's optimal consumption bundle(i.e. the amount of Tees and Jeans he will buy)andsolve forthe Total Utilitythat he will have consuming those goods.

Hint: At optimal choice, recall: slope of indifference curve = slope of budget constraint i.e. simplifiedEqui-Marginal Principle:

c.Now, assume there is a change in price.Solve for Eric's Optimal Consumption Bundle when the price of x = $20. What is his corresponding Total Utility?(Hint: Both theEqui-marginal Criterion AND Budget Constraint change).

d.For a further price reduction, solve for Eric's Optimal Consumption Bundle when Price of x = $5. What is his corresponding Total Utility?

e.Using the Prices and your results of theQuantities of t-shirts Eric will consume from parts b-d, Plot Eric's Demand for Good X (T-Shirts).

f.Moving down alongEric'sdemand curve, whatdo we find to be true about hisutility, and why?Explain.You should have two characteristics which we discussed in slides/class.