A number of states have debated whether to institute lotteries. One argument used to great effect by lottery proponents is that lottery revenues will be devoted to education.

Sketch a state’s budget constraint between

“education” and “expenditures on all other commodities.” Show how the introduction of revenues from a lottery affects the budget constraint.

Draw an indifference map, and show how education expenditures compare before and after the lottery. According to your diagram, do education expenditures increase by the full amount of the lottery revenues? Why would it be difficult to determine whether the government was keeping its promise to spend all the lottery revenues on education?