The city debates about how to attract more people to dine out in Sydney Nick is from sydney. Has standard strictly convex preferences over restaurant meals and other goods. Dines out 4 times a month and spends $40 per meal. Spends $600 on Other goods (OG) at $1 per unit of OG Council is going to assist Nick to eat out more. a) Suggestion to give nick 4 meal vouchers per month, voucher is for one meal at $40 (Cannot be exchanged, sold or cashed) Must be spent on meals and not other goods. Draw budget constraint after receiving vouchers, put OG on the horizontal axis. What will happen to Nick’s consumption after receiving said vouchers (meals and OG are both normal goods) b)Alternative Suggestion to give Nick $160 in a month instead of 4 x $40 meal vouchers in a month, nick can buy whatever he wants with this money. Draw the new budget constraint under this alternative. What will happen to Nick’s consumption if he receives an extra $160 (meals and OG are both normal goods) c) Compare the two suggestions. Is the initial suggestion (A) correct in saying that giving vouchers instead of cash to Nick will ENSURE he does not increase drinking and gambling (OG) SOLVE C
The city debates about how to attract more people to dine out in Sydney
Nick is from sydney. Has standard strictly convex preferences over restaurant meals and other goods.
Dines out 4 times a month and spends $40 per meal.
Spends $600 on Other goods (OG) at $1 per unit of OG
Council is going to assist Nick to eat out more.
a) Suggestion to give nick 4 meal vouchers per month, voucher is for one meal at $40 (Cannot be exchanged, sold or cashed) Must be spent on meals and not other goods. Draw budget constraint after receiving vouchers, put OG on the horizontal axis.
What will happen to Nick’s consumption after receiving said vouchers (meals and OG are both normal goods)
b)Alternative Suggestion to give Nick $160 in a month instead of 4 x $40 meal vouchers in a month, nick can buy whatever he wants with this money. Draw the new budget constraint under this alternative. What will happen to Nick’s consumption if he receives an extra $160 (meals and OG are both normal goods)
c) Compare the two suggestions. Is the initial suggestion (A) correct in saying that giving vouchers instead of cash to Nick will ENSURE he does not increase drinking and gambling (OG)
SOLVE C
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