Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

a) John is on social welfare that gives him 20 units of x (in terms of food stamps) every week. Let us assume that he

a) John is on social welfare that gives him 20 units of x (in terms of food stamps) every week. Let us assume that he has an option of selling some of his food stamps at 50% off (i.e., at 0.5px where px = price of x). Further assume that px=10, py=5, and he has $100 to spend per week and that his utility function is characterized by U(x, y)= min[2x, y]. Draw his budget constraint function and identify his optimal consumption bundle with help of a diagram. (5 points) (b) Instead of food stamps, the government may consider to give him the equivalent value of cash. What would his consumption bundle be? Is he better off or worse off? Why? (5 points) (c) What will your result in (b) be if his utility is U(x, y)=x2/3y1/3 ? Why? (5 points)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Statistics For Engineers And Scientists

Authors: William Navidi

3rd Edition

73376345, 978-0077417581, 77417585, 73376337, 978-0073376332

Students also viewed these Economics questions

Question

find all matrices A (a) A = 13 (b) A + A = 213

Answered: 1 week ago