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(Subsidy Benefit) Analysis on the local currency (LC, hereafter) suggests that the existence of substitution effect from subsidizing LC is the key in initiating the

(Subsidy Benefit) Analysis on the local currency (LC, hereafter) suggests that the existence of substitution effect from subsidizing LC is the key in initiating the behavioral change of a typical consumer. A. Please provide an example where although the LC affiliates and non-affiliates do not compete by offering the products that are perfect substitutes, subsidizing the LC leads to the behavioral change in consumption choice. (Hint: Envision the case where a consumer can buy a large amount of the subsidized LC) B. Please provide an example where although the LC affiliates and non-affiliates compete by offering the products that are perfect substitutes, subsidizing the LC does not lead to the behavioral change in the consumption choice. (Hint: Envision the case where subsidizing the LC only leads to a small change in the relative price of x to y)

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