Reference no: EM131633577

Save Open Spaces (SOS) is a non-profit organization that promotes protection of undeveloped land. They perform two primary activities: purchasing undeveloped land for preservation and lobbying Congress for additional protection for undeveloped land. SOS has a budget of $600,000. Currently, two-thirds of their budget goes to purchasing land, and one-third to lobbying.

1. Draw a budget constraint and indifference curve for SOS with land preservation on the x-axis and lobbying on the y-axis. You can assume that the current balance of activities maximizes the utility of the organization. Be sure to show the endpoints of the budget constraint, as well as spending on land preservation and lobbying.

2. Irwin M. Green, a rich philanthropist with an interest in environmental issues, offers SOS a $100,000 grant, with the stipulation that the funds can only be used to purchase new lands for protection. Thus, money from the grant cannot be used to support lobbying activities. Reproduce your illustration from part (1). Then, show how the budget constraint changes after SOS receives the $100,000 grant. Add an indifference curve showing SOSs distribution of activities after receiving the grant. Will the amount of land purchased by SOS increase by $100,000? Why or why not?