2) A consumer’s preferences are given by U(X,Y) = X0.6Y 0.4 . The price of X is 4, and the price of Y is 5. The consumer has an income of $2000. a) What is the utility maximizing choice of X and Y? b) How would the utility maximizing choice change if price of X falls to 3 because of a price subsidy? c) Given the answers to the previous parts plot a linear demand function for X. d) Show that the consumer would prefer the cash equivalent of the price subsidy in part b.

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