Course: Microeconomics - Consumer Rational Choice - Ch. 3 Robert Frank's Book

The US Federal Government wants to support education, but it should not support religion, so it gives the University of Notre Dame $2 million on the condition that it uses the money only for secular purposes. The accompanying graph shows Notre Dame's budget constraint before receiving the aid and the best indifference curve it can achieve in the case of secular and religious expenditures. How would the University's welfare vary if the aid were NOT conditional?

Religious Activities (M$) 16 14 12 10 8 2 Secular Activities M$ 0 2 4 6 8 10 12 14 16 18