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A household spends their income on two goods: other goods and travel. Travel stands for regional travel undertaken by a household within their own state.
- A household spends their income on two goods: "other goods" and "travel". "Travel" stands for regional travel undertaken by a household within their own state.
- All households have "usually shaped" or "well-behaved" preferences between these goods.
- Income of any household is denoted as Y and it exceeds $400.
- The price of a unit of other goods is $1 and the price of a unit of travel is $p per unit in each state.
- Other goods and travel are homogenous and divisible goods that can also be consumed in fractional quantities.
- All households treat other goods and travel as normal goods and both have positive income elasticities
Victorian Regional Travel Voucher Scheme: A voucher recipient gets $200 reimbursement as long as they spend at least $400 on travel. South Australian Regional Travel Voucher Scheme: A voucher recipient gets a $50 voucher to spend on regional travel.
Question
illustrate how a household's budget line will change if they are successful in securing a travel voucher in Victoria. On a separate diagram, do the same for a household who's successful in securing the Great State Voucher in South Australia. Explain your work.
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