Question: Please show explanation with the solution, thank you!! They are both free response. 1) Imagine you consume two goods, X and Y, and your utility

Please show explanation with the solution, thank you!! They are both free response.

1) Imagine you consume two goods, X and Y, and your utility function is U = XY.Your budget is $100, the price of Good X is $4, and the price of Good Y is $25. So, the optimal bundle for you to consume is (12.5, 2). Now the price of good X increases to $10. What is the new optimal X for you to consume?

2) Imagine you consume two goods, X and Y, and your utility function is U = XY.Your budget is $100, the price of Good X is $4, and the price of Good Y is $25. So, the optimal bundle for you to consume is (12.5, 2). Now the price of good X increases to $10. The compensated price bundle is (7.91, 3.16). What is the income effect on X?

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