Assume that in your first job after graduating from UD you live in a city where the price of food is PF and the price of housing is PH. You consume F1of food and H1of housing per year. Assume that you have strictly convex indifference curves and consume only these two goods. After two years living in this city, your company transfers you to a new city where the price of food is 50 percent higher and the price of housing is 20 percent higher.

2 econ questions
1. Assume that in your first job after graduating from UD you live in a city where the price of food is PF and the price of housing is PH. You consume F1of food and H1of housing per year. Assume that you have strictly convex indifference curves and consume only these two goods. After two years living in this city, your company transfers you to a new city where the price of food is 50 percent higher and the price of housing is 20 percent higher.

a. Draw a graph that illustrates the information mentioned above.
b. Assume that your company increases your income by just enough for you to be able to continue to buy F1 and H1. Using both your graph and a written explanation describe why one could say that you are being overcompensated by your company.

2. Ursala has the following utility function: U = 2q10.5q20.5. Assume that both prices equal 2 and income equals 100. Assume further that the government imposes a quota limiting Ursala to a maximum of 10 units of good 1.

a. Determine Ursala’s utility maximizing choice of the two goods when there is no quota.
b. Now determine the change in utility experienced by Ursala due to the quota.
c. Determine the equivalent variation of the quota.

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