Policy Inquiry Assignment .docx - ECON1056 Price Theory...

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ECON1056 Price Theory Policy Inquiry 1. Introduction The purpose of this report is to find out which option is the best for low-income families among the proposed policies by the government and the institute for cold hearted economics (ICHE). Since consumers have different preferences, not all the policies proposed by the governing body and the economic institute might be the best fit for fixing the issue of the low standard of living in Autarka. In order to determine which policy is the best, we first have to weigh the impact of the policies proposed on family welfare as well as determine the cost of it. We have to also consider the consequences of each policy on the rental market together with analysing how the fluctuation of price will affect landlords of low standard housing, this methodology is being used in this report. The key findings of this report shows that both the government and the economic institute has a very different approach to tackle this underlying issue. 160 words 2. Analysis 1. Marginal rate of substitution for low-income families Marginal rate of substitution = dy dx = MUx MUy = y 3 3 x y 2 = y 3 x 1
Diminishing returns apply as x increases and y decreases, we move right across the indifference curve the MRS is diminishing. 2. Family demand for acceptable house Px = y 3 x y = 3 P X x Finding budget line given Py = 1 , P x x + 3 P x x = I x ( Px + 3 Px ) = I 4 P X x = I x = I 4 Px

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