Draw budget constraint for individual with composite good

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Reference no: EM13740030

1. An individual has an income of $1000 per month with which they buy the composite good with a price of $1 and food with a price $2/unit of food.

A) draw the budget constraint for the individual with the composite good on the y-axis and food on the x-axis

B) now assume that the government gives the individual food stamps worth $100. This is money that can only be spent on food. Draw the new budget constraing for the individual on your graph from part a

C) assume instead that the government had given the individual $100 in cash. Draw the new budget constraint for the individual on your graph from part a.

D) would the consumer prefer to get $100 in food stamps or $100 in cash? You need to justify your answer thinking through the possible optimal consumption bundles for the consumer.

Reference no: EM13740030

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