1. Business
  2. Economics
  3. a the smith family has an income of 1000 per...

Question: a the smith family has an income of 1000 per...

Question details

a. The Smith family has an income of $1,000 per month, and currently spends $400 monthly on food. Assume that the initial price of a unit of food is $1, and the initial price of a unit of “all other goods” is also $1. Draw this budget line, and also an indifference curve – which we assume has the standard shape – that the family can just reach, given its budget.

b. The government considers that the Smith family is rather poor, and is discussing a number of possible ways to help. For each of the following, draw the new budget line:

b.1. The government provides income support in the form of a grant of $250.

b.2The government provides food stamps worth $250. These may only be spent on food.

b 3.The government provides a discount card that will allow the family to buy anything at half price, but only for the first $500 worth of purchases.

c. Which of the options in 8.b would the Smith family prefer? Why?

Solution by an expert tutor
Blurred Solution
This question has been solved
Subscribe to see this solution