Question 2 A representative household wants to decide between real estate consumption, q and non-real estate consumption, x. This household earns an income, y of 5,000. Given the price of real estate per square footage, p is 4 and price of non-real estate per unit, t is normalized to 1. The household's marginal rate of substitution is given by, MRS 9 2x - a. Write the formula for budget constraint. Then, substitute in for known values. (1 point) b. Rewrite the substituted budget constraint from (a) with x as the LHS variable. Then, identify the intercept and slope of this budget constraint. (2 points) c. Set the slope of the budget constraint equal to MRS, to express q in terms of x. d. Solve for the consumption levels of q and x. (5 points) e. Now suppose price of real estate increases to 6. Solve for the new consumption levels of q and x. (Hint: redo (a) to (d), with p 6). = (2 points) (10 points) f. Plot the real estate consumption levels associated with the two price points, with price, p on the y-axis and real estate consumption level, q on the x-axis. What is the relationship between p and q? (10 points)

A representative household wants to decide between real estate consumption, q and non-real estate consumption, x. This household earns an income, y of 5,000 . Given the price of real estate per square footage, p is 4 and price of non-real estate per unit, t is normalized to 1 . The household's marginal rate of substitution is given by, MRS=2xq. a. Write the formula for budget constraint. Then, substitute in for known values. (1 point) b. Rewrite the substituted budget constraint from (a) with x as the LHS variable. Then, identify the intercept and slope of this budget constraint. (2 points) c. Set the slope of the budget constraint equal to MRS, to express q in terms of x. (2 points) d. Solve for the consumption levels of q and x. (5 points) e. Now suppose price of real estate increases to 6 . Solve for the new consumption levels of q and x. (Hint: redo (a) to (d), with p=6 ). (10 points) f. Plot the real estate consumption levels associated with the two price points, with price, p on the y-axis and real estate consumption level, q on the x-axis. What is the relationship between p and