Question
From April 2022,British households will face a record 54% energy bill rise. Assume that the British government decided to support families in order to achieve
From April 2022,British households will face a record 54% energy bill rise. Assume that the British government decided to support families in order to achieve the same living standard as before the increase in energy price. For simplicity, assume there is no change in other prices apart from energy. Also, assume that energy and all other goods are normal goods.a) for a representative British family, draw a diagram to show the family's new optimal consumption point after the increase in energy price. Split the total effect of the price rise into substitution and income effect.b) replicate the previously drawn diagram in Q1a). Measure the welfare impact of the government decision on the family's welfare. Could you help me just to explain my diagram and the welfare impact of the government decision ?
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