Chrissy purchases food f and other goods y and has the

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chrissy purchases food (f) and other goods (y) and has the utility function U(f,Y)-F*Y with Muf=y and Muy=f. her income is $12. the price of a unit of food is 2 and the price of other goods is 1.

A. how many units of food does she consume when she maximizes utility?

B. the government has recent completed a study suggesting that fora health diet every consumer like chrissy a cash subsidy that would induce her to buy F=8. how large would the cash subsidy need to be? show her optimal basket iwth the cas subside on an optimal choice diagram with f on the horizontal axis and y on the verical axis.

C. as an alternative to the cash subsidy in part (b) the goverment is also considering giving conusemrs like chrissy good stamps, that is, vocher with a cash value that can only be redeemed to purchase food. verify that if the goverment give her vouchers worth $16 she will choose F=8. illustrate her optimal choice on an optimal choice diagram. you many use the same graph in part (b).

Reference no: EM13378049

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