) Determine the decomposition basket that identifies the substitution and income effects as the consumer moves from the optimal basket in part a) to the optimal basket in part c). e) Identify the substitution and income effe
2. Consider a consumer who purchases two goods, x and y. The consumer’s utility function is U(x, y) = xy. Assume initially that the consumer’s income is $160, the
a) Find the utility-maximizing bundle of x and y-So the utility-maximizing bundle of good "x" and good "y" is equal to 10 units of good "x" and 80 units of good "y".
b) Find the total utility at the utility-maximizing bundle. total utility is equal to 800.
c) Now assume the price of x decreases to $4. Re-compute the values from part a) at the new price. So the utility-maximizing bundle of good "x" and good "y" is equal to 20 units of good "x" and 80 units of good "y".
d) Determine the decomposition basket that identifies the substitution and income effects as the consumer moves from the optimal basket in part a) to the optimal basket in part c).
e) Identify the substitution and income effects as the consumer moves from the initial consumption basket to the final consumption basket.
f) Draw a graph illustrating these effects. { I need answer d, e, & f}
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