Question
Look at the following graph, assuming Good Y is wind power and Good X is coal power (don't be confused by the Y axis being
Look at the following graph, assuming Good Y is wind power and Good X is coal power (don't be confused by the Y axis being Good X and vice versa. If you want, you can change the labels!). Point A is the original level of utility a consumer receives under their budget constraint (BC1). What policy tool is being used here? What happens to the consumption of wind and coal? Where does the change in price lead us (give me the letters)? Identify the substitution and income effects. Is there a difference between where we would want the individual to be in terms of her personal utility maximization and the goal of the policy? Why or why not?
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