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Governments often try to encourage people to consume more of a particular good, for example, education. Produce an indifference curve and budget constraint diagram with
Governments often try to encourage people to consume more of a particular good, for example, education. Produce an indifference curve and budget constraint diagram with "all other goods" on the vertical axis and "education" on the horizontal axis. Show the consumer's optimum on this diagram before the existence of a subsidy. Now, suppose the government subsidizes education. Illustrate the effect of the subsidy on the budget constraint and the consumer's optimum. (HINT: A subsidy lowers the price of a good)
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