# Question: a draw and label completely axes intercepts budget constraints a...

###### Question details

(a) Draw and label completely (axes, intercepts, budget
constraints) a diagram describing a consumer’s choice regarding
consumption of rice and other items when she has Y rupees of income
and faces prices *P _{r}* in rupees per unit of Rice
and

*P*per unit of All Other Goods. Label the budget constraint BC1. Put Rice on the y axes and All Other Goods on the x axis.

_{o}(b) Construct the new budget constraint (on the same graph) she
would face if she were offered the opportunity to purchase a
limited quantity *R* of rice at a subsidized price
*P _{s}*, which is

lower than

*P*. You may assume that

_{r}*R*is less than

*Y/P*. Label the new budget constraint BC2. Put Rice on the y axes and All Other Goods on the x axis.

_{r}(c) Is the consumer better or worse off than if they got a cash
transfer worth R*(*P _{r} - P_{s}*) rupees
(an “equivalent” cash transfer)? Explain using your diagram.