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(20) Anne has preferences over necklaces (N) and bracelets (B). Suppose the price of necklaces (PN...

(20) Anne has preferences over necklaces (N) and bracelets (B). Suppose the price of necklaces (PN ) is $2 and the price of bracelets (PB ) is $4. Anne’s income (m) is $24.

(a) (5) What is Anne’s optimal bundle given the following preferences: U(N,B) = min(2N,B)

Label your answers as N1∗ and B1∗ and draw a box around your answers.

(b) (5) Consider a change in income such that m=48. What is the new optimal bundle? Label your answers as N2∗ and B2∗ and draw a box around them.

(c) (5) Derive the function for the Engel curve for necklaces using PN = $2 and PB = $4. Write your answer as the quantity of necklaces as a function of income, N(m), and draw a box around your answer.

(d) (5) Using your answer from (c), what is the income elasticity of demand for necklaces at m= 24? Label your answer εN,m and draw a box around it.

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