Reference no: EM131457271

1. On the graph below, draw the budget line associated with each of the following prices of goods X and Y and income levels:

a) Px= $1, Py= $2, M= $40

b) Px = $2, Py= $2, M= $40

c)  Px= $2, Py= $4, M= $40

d) Assume for prices in part (a), the consumer's utility-maximizing consumption bundle is:

(X,Y) = (24,8).

 I. What will happen to the utility-maximizing consumption bundle if the price of good X increases? (i.e. move from (a) to (b))

II. What will happen to the utility-maximizing consumption bundle if the prices of goods X and Y both double? (i.e. move from (a) to (c))