Question
While composing your answers, assume the following: (1)A household spends their income on two goods: other goods and travel. Travel stands for regional travel undertaken
While composing your answers, assume the following:
(1)A household spends their income on two goods: "other goods" and "travel". "Travel" stands for regional travel undertaken by a household within their own state.
(2)All households have "usually shaped" or "well-behaved" preferences between these goods.
(3)Income of any household is denoted as Y and it exceeds $400.
(4)The price of a unit of other goods is $1 and the price of a unit of travel is $p per unit in each state.
(5)Other goods and travel are homogenous and divisible goods that can also be consumed in fractional quantities.
(6)All households treat other goods and travel as normal goods and both have positive income elasticities.
(7)Ignore the nitty gritty of each state's regional travel voucher scheme and work with the following simple interpretations:
Victorian Regional Travel Voucher Scheme: A voucher recipient gets $200 reimbursement as long as they spend at least $400 on travel.
South Australian Regional Travel Voucher Scheme: A voucher recipient gets a $50 voucher to spend on regional travel.
Illustrate how a household's budget line will change if they are successful in securing a travel voucher in Victoria. On a separate diagram, do the same for a household who's successful in securing the Great State Voucher in South Australia. Explain your work.
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