Question
Shaukat Mughal is a rational consumer. He has faced finandal difficulties recently which means he only makes BO dollars per week. He spends half of
Shaukat Mughal is a rational consumer. He has faced finandal difficulties recently which means he only makes BO dollars per week. He spends half of this on food and the rest on other goods. The cost of food per unit is 1 dollar and the cost of the other goods is also 1 dollar per unit. Draw his budget line with food expenditures on the x-ads and expenditures on all other goods on the y-axis. Label his consumption bundle with the letter a.
b. Shaukat is now eligible for food vouchers. This means that he can buy vouchers that can be exchanged for 2 dollars worth of food. Each voucher costs Shaukat 1 dollar. He can only buy a maximum of 10 vouchers per week. If Shaukat has homothetic preferences, how much more food will he buy once he is on the food voucher program? Please explain how you arrived at the answer and show all the steps. On the graph that you drew for part a, draw his new budget line as a dotted line and label his new consumption bundle with the letter b.
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