Reference no: EM133129706

Ann consumes only cups of coffee, x1, and teaspoons of sugar, x2. Ann has an income of $200. A cup of coffee costs $2 and a unit of sugar costs $1.

(a) Draw Ann's budget line (graph x1 on the horizontal axis and x2 on the vertical axis; label all important points and intercepts).

(b) Suppose that congress eliminates all agriculture subsidies from the federal budget. Therefore, the price of teaspoon of sugar increases to $4. Draw Ann's budget line (graph x1 on the horizontal axis and x2 on the vertical axis; label all important points and intercepts).

(c) Ignore the information in part b. Instead, of eliminating the agriculture subsidies, congress decides to balance the budget through an increase on taxes. Ann now pays an income tax of 80%. Draw Ann's budget line (graph x1 on the horizontal axis and x2 on the vertical axis; label all important points and intercepts).