Jill has an income of $60 per week. Jill buys gasoline and other goods out of this income. Suppose this price of gas is $1.50/gallon and the price of the composite other good is $1.
a) Draw Jill's budget constraint for gasoline and other goods per week.
Now suppose that the government implements a policy to ration gasoline at a maximum of 10 gallons per person per week.
b) On the same graph, draw Jill's budget constraint including the rationing
c) Assume that without rationing, Jill's maximized her utility by consuming 15 gallons of gas a week. Using your graph, demonstrate that the rationing plan reduces Jill's utility.
d) Assume that with the rationing, Jill maximizes her utility when she buys 10 gallons of gas per week. Would she be better off if there was no rationing but the price was $3/gallon? Explain.