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Consumer optimization Graph a consumer's budget constraint with income = $Y, Price of dental visits = $X, Price of all other goods = $1. Add
- Consumer optimization
- Graph a consumer's budget constraint with income = $Y, Price of dental visits = $X, Price of all other goods = $1.
- Add an indifference curve containing the consumer's optimum point. Label the curve IC1, label the optimum point A.
- Say the consumer obtains dental coverage. They pay no premium for the coverage, and it lowers the price they must pay for a dental visit. On the same graph, show what happens to the consumer's budget constraint.
- Draw a new indifference curve containing the consumer's new optimum consumption point, label it IC2 and label the new optimum point B.
- In three sentences or less, how does this illustrate an improvement in the consumer's wellbeing?
- If economists considered this subsidy of dental insurance to be efficient, that would imply that the marginal private benefit of dental insurance is [GREATER THAN OR LESS THAN] the marginal social benefit of insurance?
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