Let a consumer have preferences described by the utility function
and an endowment of 2 units of good 1 and 2 units of good 2.
a. Construct and sketch the consumer’s budget constraint. Show what happens when the price of good 1 increases.
b. By maximizing utility, determine the consumer’s demands.
c. What is the effect of increasing the endowment of good 1 upon the demand for good 2? Explain your finding.