(a) Find Diego Dicarve's utility by maximizing the choice of domestic and foreign travel.

Find her utility consuming that bundle. (5 marks)

(b) Suppose the price of domestic travel increases to PD = $280 per day. Find the new

optimal bundle at this price as a function of her budget for traveling I: (5 marks)

(c) Find the income needed for Diego Dicarve to reach the same utility as before the price

change. (5 marks)

(d) Compute the quantities demanded with the new prices and the new income you found

in part c) (3 marks)

(e) Compute the quantities demanded with the new prices and the original income. (2

marks)

(f) Decompose the changes in the quantity of D due to the income and substitution eects;

illustrate with a graph. Give denitions of what the income and substitution eects

mean. (5 marks)