Reference no: EM13846433

Consider a nation where the government is very oppressive of its citizens. In particular consider Dawn, a single mother with four kids, who works 3 jobs in addition to raising her children. Dawn's passion in life is reading and knowledge and she can buy 2 goods with her income: books or food. If the price of food is $10 and the price of a book is $5 and her income is $200 a month answer the following questions.

a. Draw Dawn's budget constraint. Place food on the horizontal axis.

b. Assume that Dawn is barely scraping by and spends 70% of her income on food so that she can feed her family. Mark this point on the budget constraint.

c. Finally, after many years of suffering, some reformers push to institute help for the families affected by the cruel government regime. The reformers push through a bill that gives poor families an additional $50 worth of food stamps. Draw the change in the budget constraint for Dawn. What happens to the books and food consumed by Dawn - explain with substitution and income effects.

d. If the reformers' true objective was to increase Dawn's ability to buy books; but giving cash to her is not allowed - is this objective being satisfied by the food stamps? Explain why or why not.