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(a) [3 points] Imagine the household consumes two items: children schooling (S) and agricultural inputs like seeds and fertilizers (F). These have prices Ps and

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(a) [3 points] Imagine the household consumes two items: children schooling (S) and agricultural inputs like seeds and fertilizers (F). These have prices Ps and PF. The total household utility is a function of the two items. At the optimal consumption levels, what must be true about the relationship between marginal utility and price of each good? (b) [8 points] Many poor households are cash constrained, especially when it comes to bigger expenditures like school fees or large seed purchases. If this is the case, they may consume away from the optimum. i. [2 points] Assume all households are consuming too much schooling and too few seeds. Re-write your condition from (a) to reect this. ii. [2 points] If you give people a small amount of additional money in this setting, what do you expect them to spend it on

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