Monthly income = salary of 1200 and a gov welfare payment of 800 Y= 2000Needs to use this income for food and goods quantity of food = qf quantity of goods= qd Price of food = 1 Price of goods = 2 1) Draw budget line, qf on vertical axis and qd on horizontal one 2) The welfare payment is now given in the form of food stamps. 1200 can be spent on food and other goods, food stamps can only be used to purchase food. The prices of food and other goods remain the same. budget line with the food stamps, measuring on the vertical axis and on the horizontal axis. Label all critical points on the budget line. Show you are at least as well off under the cash welfare payment as under the food stamps. Here is how: Depict the budget lines in 1. and 2a. in a single diagram and superimpose indifference curve(s) to show the optimal consumption bundle(s). You will need two such diagrams to illustrate two different cases: optimal consumption bundle is the same under the cash welfare payment and under the food stamps, and ii. optimal bundle under the cash welfare payment is strictly more preferred than the optimal bundle under the food stamps.

Given Monthly Income = 1200 Price of Food (PF) = 1 Price of Goods (PG) = 2 We know that Bidgte…

Answered: Monthly income = salary of 1200 and a…

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 2SQP

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Monthly income = salary of 1200 and a gov welfare payment of 800

Y= 2000

Needs to use this income for food and goods

quantity of food = qf

quantity of goods= qd

Price of food = 1

Price of goods = 2

1) Draw budget line, qf on vertical axis and qd on horizontal one

2) The welfare payment is now given in the form of food stamps. 1200 can be spent on food and other goods, food stamps can only be used to purchase food. The prices of food and other goods remain the same.

1. budget line with the food stamps, measuring on the vertical axis and on the horizontal axis. Label all critical points on the budget line.
2. Show you are at least as well off under the cash welfare payment as under the food stamps. Here is how: Depict the budget lines in 1. and 2a. in a single diagram and superimpose indifference curve(s) to show the optimal consumption bundle(s). You will need two such diagrams to illustrate two different cases: optimal consumption bundle is the same under the cash welfare payment and under the food stamps, and ii. optimal bundle under the cash welfare payment is strictly more preferred than the optimal bundle under the food stamps.

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