Question
Aria consumes only potatoes and cheese. When the price of potatoes was $9 a sack and the price of cheese was $5 a packet, he
Aria consumes only potatoes and cheese. When the price of potatoes was $9 a sack and the price of cheese was $5 a packet, he spent his entire income to buy 5 sacks of potatoes and 10 packets of cheese per month.
New: Now, the government subsidizes potatoes. Market prices are the same, but consumers get $5 in subsidy for every sack of potatoes they buy. To pay for this subsidy, the government has introduced an income tax of $20 a month.
a. What is Aria’s new budget equation?
b. Can Aria afford more or less on potatoes and cheese than before?
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Macroeconomics Principles Applications And Tools
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
7th Edition
978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234
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