2. Suppose there are two goods in the economy: Food (F) and Composite good (Y), with Pp = 1 and Py = 2. Consider a consumer who has utility function u(F,Y) = InF + In Y and income I = $100. (a) Find the consumer's consumption choice. (b) Suppose, to promote better nutrition, the government institutes a welfare program that gives every consumer with income less than $500 additional $100. Find the consumer's new consumption choice. How much of the government's payment went into purchasing Food? (c) Suppose rather than giving cash, the government gives a voucher that can only be used to purchase (up to) $100 worth of Food. How does this affect the consumer's consumption choice? (d) Which of the two programs is more effective in achieving the government's goal? Explain.
2. Suppose there are two goods in the economy: Food (F) and Composite good (Y), with Pp = 1 and Py = 2. Consider a consumer who has utility function u(F,Y) = InF + In Y and income I = $100. (a) Find the consumer's consumption choice. (b) Suppose, to promote better nutrition, the government institutes a welfare program that gives every consumer with income less than $500 additional $100. Find the consumer's new consumption choice. How much of the government's payment went into purchasing Food? (c) Suppose rather than giving cash, the government gives a voucher that can only be used to purchase (up to) $100 worth of Food. How does this affect the consumer's consumption choice? (d) Which of the two programs is more effective in achieving the government's goal? Explain.
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.9P
Related questions
Question
100%
Transcribed Image Text:2. Suppose there are two goods in the economy: Food (F) and Composite good (Y),
with Pp = 1 and Py = 2. Consider a consumer who has utility function
u(F,Y) = InF + In Y
and income I = $100.
(a) Find the consumer's consumption choice.
(b) Suppose, to promote better nutrition, the government institutes a welfare
program that gives every consumer with income less than $500 additional
$100. Find the consumer's new consumption choice. How much of the
government's payment went into purchasing Food?
(c) Suppose rather than giving cash, the government gives a voucher that can
only be used to purchase (up to) $100 worth of Food. How does this affect
the consumer's consumption choice?
(d) Which of the two programs is more effective in achieving the government's
goal? Explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc