Assume a consumer's utility function is given by the U(X, Y) = X*Y. Also, the consumer has $576 to spend, and the price of X, PX = 16, and the price of Y, PY = 4.
1. Explain how much X and Y should the consumer purchase in order to maximize her utility?
2. Discuss how much total utility does the consumer receive?
Now suppose PX decreases to 9. Determine the new bundle of X and Y that the consumer will demand?
3. Explain how much money would the consumer need in order to have the same utility level after the price change as before the price change?
4. Of the total change in the quantity demanded of X, explain how much is due to the substitution effect and how much is due to theincome effect?