l 2 1. An individual has a utility function u = xfxg and an income of $60. a) Solve for MU1 and M U2 and use these to determine the MRS. Now use the tangency condition M R8 = % together with the budget line to solve for the demand functions for 1 and 3:2 for this consumer. b) Initially we have p1 = 2 and p2 = 1, but then 3); falls to 1. Use your demands to solve for points A and C (the Optimal points pre and post price change) as done in class. Show these points on a clear well-labelled graph 0) New determine the Slutsky demand by computing the income that would make point A just affordable with the new prices. Plug this hypothetical income and the new prices into your demands to solve for point B, as done in class. Show both the hypothetical budget line and point B on either your graph in a) or a new graph. Again, make your graphs - including those below complete and clear. Show the substitution and income effects on your graph, and compute them. d) Graphically, do the same analysis using the Hicks decomposition method (don't solve explic- itly for 'point B', but show it. on a graph). Show the income and substitution offsets on your graph. e) Which substitution effect is larger ( in absolute value) the Slutsky one or the Hicks one? Is this true for any set of prices and any income (keeping the same preferences)? (40 pts)