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Mr. Asia consumes two goods, instant noodles and other goods. The price of a packet of instant noodles is 2 euros. He has 600
Mr. Asia consumes two goods, instant noodles and other goods. The price of a packet of instant noodles is 2 euros. He has 600 available to spend on these two goods. If Mr. Asia spends all his income on other goods, he can buy 200 units of these goods. Mr. Asia seeks to maximize his satisfaction, and his indifference curves are of the usual form. The income elasticity of demand for instant noodles is -2.5. a) Mr. Asia is currently consuming 27 packets of instant noodles. Show its equilibrium in appropriate graph, accurately marking all axes, curves and intercepts and its equilibrium position. Also determine the equilibrium quantity of the other goods. b) In the next period, the state grants Mr. Asja a subsidy in the amount of 54 euros. Show its new equilibrium in the graph above. Accurately mark all curves and line segments. c) In the graph under point a), show the equilibrium in the case that the government gives. Mr. Asia 27 coupons for instant noodles instead of a subsidy. Only 1 package of instant noodles can be purchased with each coupon, and coupons cannot be resold. Accurately mark all curves and line segments. d) Is the below statement correct? Justify your answer in no more than 2 sentences. CLAIM: Mr. Asia is indifferent between a subsidy of 54 euros and 27 coupons for instant noodles.
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