Question: Sally consumes two goods, X and Y. Her utility function is given by the expression: The current market price for X is 10, while the

Sally consumes two goods, X and Y. Her utility function is given by the expression:

The current market price for X is 10, while the market price for Y is 5. Sally's

current income is 500.

a)Sketch a set of two indifference curves for Sally in her consumption of X and Y corresponding to the values of ₁= 60 and ₂= 72.

b) Write the expression for Sally's budget constraint. Graph the budget constraint.

Determine and interpret its slope.

c)Determine the X,Y combination which maximizes Sally's utility, given her budget

constraint. (Partial units for the quantities are possible.)

d)Show diagrammatically your answer in c)

e) Calculate the impact on Sally's optimum market basket of an increase in the price of X to 15. What would happen to her utility as a result of the price increase?

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