1. anna spends all her monetary income on bread (b) and milk (m)

1. Anna spends all her monetary income on Bread (B) and Milk (M), and has standard,
"well-behaved" preferences over bundles of these two goods. The price of M is 2 and the price of B is 1. At the current consumption bundle, Anna exhausted her income and her marginal rate of substitution of milk for bread is "1".
a) If Anna's current consumption bundle contains positive amounts of both goods, can we conclude that it is not optimal? Provide both a graphical solution and an intuitive explanation (your intuitive explanation should not refer to your graph! if in difficulty, look up the intuitive interpretation of MRS in Lecture I.4 and recall the intuitive interpretation of the slope of the budget line').
b) Reconsider (a) for a bundle that contains only Bread.
2. Yuri spends all of his monetary income mo on two goods, X and Y, that cost px° per unit of Good X and pr° per unit of good Y, respectively. His preferences over the bundles of these goods are standard, and his current optimal bundle (xo, yo) contains positive amounts of both X and Y.
Suppose Yuri's income decreases to m1, and his optimal consumption bundle changes to (x, > 0, y1 > 0). Draw a graph illustrating i) Yuri's budget line before the change (indicate the location of (xo, yo) on this line!), (ii) Yuri's budget line after the change, and (iii) all possible locations of (x1, y1) if:
a) good X is a luxury good
b) good X is a necessity
c) good X is inferior (do "a", "b" and "c" on the same graph)
2. Yuri spends all of his monetary income mo on two goods, X and Y, that cost px° per unit of Good X and pr° per unit of good Y, respectively. His preferences over the bundles of these goods are standard, and his current optimal bundle (Xo, Yo) contains positive amounts of both X and Y.
Suppose the price of X increases, so his optimal consumption bundle changes to (x2 > 0,12 > 0). Draw a graph illustrating i) Yuri's budget line before the change (indicate the location of (xo, yo) on this line!), (ii) Yuri's budget line after the change, and (111) all possible locations of (x2, y2) if:
a) Goods X and Y are gross substitutes
b) Goods X and Y are gross complements
c) Good X is a Giffen good (which means, own-price elasticity of demand for good X is a positive number) (do "a", "b" and "c" on the same graph)
' This was discussed during the lecture, but wasn't mentioned on the slides.
Is it true that, if good X is a Giffen good, then goods X and Y must be gross complements for Yuri? You can rely on your illustrations to explain.