consumer_choice sol

consumer_choice sol - UBC COMM 295/FRE 295 Solution to...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: UBC COMM 295/FRE 295 Solution to Problem Set #2 Consumer Choice 1. The local farmer's market sells corn for $0.20 each. At this price, Sam buys 6 every Thursday. Show in a diagram what would happen to Sam's consumption of corn if the market offered corn at $0.20/corn for the first 6, but $0.10/corn for each additional corn? 2. A consumer decides not to buy a VCR when her income is $18,000. However, when her income rises to $30,000, she decides to buy one. In a single diagram, draw the budget lines and indifference curves to illustrate this situation (assume the VCR costs $300 in both time periods). 3. Suppose that the government subsidizes housing expenditures of low-income families by providing a dollar-for-dollar subsidy to a familys housing expenditure. The Cunninghams qualify for this subsidy and spend a total of $500 per month on housing: they spend $250 of their own and receive a government subsidy of $250. Recently, a new policy has been proposed that would provide each low income family with a lump sum transfer of $250 U 1 U2 >u1 A B 6 Corn y/0.2 Other goods y/0.1 which can be used for housing or other goods (and this new income is just good enough to buy the old housing level). Using a graph, demonstrate whether the Cunninghams would prefer the current program, the proposed program, or would be indifferent between the two. Assume for simplicity that prices of both housing and other goods = $1 With a dollar for dollar subsidy, they can buy maximum 2y housing (instead of y without subsidy). With this budget line, they spend $500 on housing (250 of their own+250 subsidy).subsidy)....
View Full Document

Page1 / 8

consumer_choice sol - UBC COMM 295/FRE 295 Solution to...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online