Suppose your indifference curves are all described by equations of the form:
(x, y) = x 2y 2
where x represents books and y represents a composite bundle of everything else our consumer buys.
a) Suppose that your income is $100 (per week), the price of books is $10 and the price of everything else (y) is $1. Find the optimal consumption bundle.
b) How many books (x) and how much of everything else (y) do you buy if the price of books rises to $12.50, and the price of everything else is $1? Show your work in math. [2 Marks] Draw a graph (with x on the horizontal axis and y on the vertical axis) to illustrate your solution
c) Graph the demand curve for books given the information that you have
d) What is the change in Consumer Surplus due to the change in price? (Assume that the demand curve is linear and that the area of a rectangle is length times width and the area of a triangle is 1 length times width)