1. Mary has $100 to spend on goods X and Y. The price of Y is pY = $2.50. Mary has wellbehaved preferences and two of her indifference curves are shown on the above graph along with some tangent points. **This is a graphical problem. You may visually estimate (eyeball) any quantities you need. You may need to locate additional tangencies. a) Suppose the price of X is $1.25. On the graph above, label Mary’s budget line as (BLA) and label Mary’s optimal consumption bundle as bundle A. b) Now suppose the price of X rises to $5. On the graph above, label Mary’s budget line as (BLB) and label Mary’s optimal consumption bundle as bundle B. c) Next find the Hicks Compensated Bundle. To do this, put your ruler on budget line BLB and move your ruler in a parallel fashion until it just touches the indifference curve through bundle A. Label this tangency as bundle C and draw the line tangent line, along with appropriate || parallel marks, and label this line as the compensated budget line BLC. Please draw graph so I can visualize it better
1. Mary has $100 to spend on goods X and Y. The
tangent points. **This is a graphical problem. You may visually estimate (eyeball) any quantities you need.
You may need to locate additional tangencies.
a) Suppose the price of X is $1.25. On the graph above, label Mary’s budget line as (BLA) and label Mary’s
optimal consumption bundle as bundle A.
b) Now suppose the price of X rises to $5. On the graph above, label Mary’s budget line as (BLB) and label
Mary’s optimal consumption bundle as bundle B.
c) Next find the Hicks Compensated Bundle. To do this, put your ruler on budget line BLB and move your
ruler in a parallel fashion until it just touches the indifference curve through bundle A. Label this tangency
as bundle C and draw the line tangent line, along with appropriate || parallel marks, and label this line as
the compensated budget line BLC.
Please draw graph so I can visualize it better
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