Possible optimal consumption bundles for the consumer

Assignment Help Business Economics

Reference no: EM13838984

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 of $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 constraint 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: EM13838984

Questions Cloud

Using supply and demand curves : If the demand increases for a product like gasoline and there is no change in the supply of gasoline at the same time, then using SUPPLY and DEMAND CURVES, the new equilibrium price might go up or stay the same, or be lowered.

Identify ms marxs ordinary income : Ms Marx recently sold her ice cream store, called 'Communist Ice Cream' in June 2015. In that income year, she made sales of $90,000. The purchaser paid Ms Marx $250,000 for the business and an additional $35,000 for Ms Marx agreeing not to operate o..

Passengers can in effect sell their confirmed reservations : If passengers can in effect sell their confirmed reservations when a seat shortage arises, why can't passengers sell their right to land at a crowded airport when a shortage of landing slots arises?

Who benefited from this new regulation : As a consequence of a 1976 court case that Ralph Nader won against an airline that had "bumped" him, the federal government adopted a rule requiring airlines to compensate people who were denied boarding despite holding a confirmed reservation. As a ..

Possible optimal consumption bundles for the consumer : 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 of $2/unit of food. Would the consumer prefer to get $100 in food stamps or $100 in cash? You need to justify your answer t..

What is the income elasticity of demand for firms product : The demand equation for a company's product it Q = 500 - 3P + 2Pi + 0.1I where Q is the quantity demanded of its product, Pi is the price of its rival's product, and I is the per capita disposable income (in dollars). At present, p = $10, Pi = $20, a..

Mutual fund will earn an average of annual interest : It is likely that your college tuition will increase an average of 8% per year for the next 4 years. The annual cost of tuition at the beginning of your freshman year in college will be $12000 (A1). How much money will you and your parents have to de..

Calculate the equilibrium quantity and price : Consider a perfectly competitive market where demand is given by P=84.20-2.15Q and supply is given by P=12.78+1.20Q. Calculate the equilibrium quantity and price.

Calculate the profit-maximizing quantity and price : A medical device company has a monopoly on a certain class of cardiac implants. Demand for the implants is given by P=28000-5Q and marginal revenue is given by MR=28000-10Q. The total fixed costs for the implants division is 50000 and the marginal co..

User Account

All Pages