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Consider the following two policies: (1) per unit subsidy for each unit of good X consumed (2) per unit subsidy for each unit of good
Consider the following two policies:
(1) per unit subsidy for each unit of good X consumed
(2) per unit subsidy for each unit of good X in excess of standard (unsubsidized level of consumption)
Is it true that consumer with fixed money income M will never reduce his consumption of good X when the second policy is introduced but might reduce his consumption of good X under the first policy (in comparison with the initial unsubsidized level)? Explain carefully (You should refer to some theoretical results that explain the result)
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