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Unformatted text preview: this imaginary budget line and the new indi f erence curve must be on the same ray from the origin as the no intervention point. (You should add labels to your graph: bold lines show old consumption and budget, this corresponds to a tangency point A, where dashed line tangent to bold indi f erence curve is the point B that. A B gives the SE. New budget and indi f erence curve are the thin lines. Intersection there is C. B C is the IE. Finally A C is the TE. Because this problem has a CD utility, B and C are on the same ray from the origin (the steeper dotted line). Also A and C are on the same horizontal line x 2 = 180 . 30 25 20 15 10 5 300 250 200 150 100 50 x1 x2 3...
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 Spring '06
 MASSON
 Utility

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