Question
Using data from household surveys, you have determined that the 'typical' household's preferences are represented by the utility function, U = (x + 24)y, where
Using data from household surveys, you have determined that the 'typical' household's preferences are represented by the utility function, U = (x + 24)y, where x represents the quantity of fruit and vegetables consumed, and y represents the quantity of the composite good consumed. The associate marginal utilities are, MUx = y and MUy = x + 24. The price of fruit and vegetables is Px = $10 per kg, and the price of the composite good is normalised to Py = 1.(They have determined that, ideally, a household would consume at least 5kg of fresh fruit and vegetables each week.)
Question: Suppose that, instead of transfers, the government decides to use vouchers redeemable for fruit and vegetables. What value of voucher would the government need in order to achieve the 5kg consumption target? Hint: Your answer will be a function of the household's income I. You should assume that vouchers cannot have a negative value.
Ps. it will be great if i can see the workings
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