Consider the utility function u(x,y) = 2lnx + lny. Initially, the prices are px = $2/unit and py = $1/unit. The consumer has an income of $24. Illustrate your answers with graphs.
(a) Derive the consumer's optimal consumption bundle.
(b) Now suppose the price of good x increases to = $3/unit. What is the new optimal consumption bundle?
(c) Calculate the substitution effect and the income effect.Illustrate it on a graph.
(d) Calculate the compensating variation and equivalent variation of the price change.