Suppose ment decides to promote the consumption of broccoll in the community. The goal is to ensure that each resident eats at least 3 pounds of broccoli per week. Consider only a single representative consumer, who purchases some broccoli at market prices and would purchase 3 pounds of broccoli if either the price were low enough or income were high enough. Assume broccoli is a good, characterized by the usual smooth, convex indifference curves. Assume further that whatever the government does has no effect on the market price for broccoli (this is a small community). The proposals are: I.) Broccoli subsidies. The consumer is to be given discount coupons good only for the purchase of broccoli. The discounted price is set so that the consumer will purchase 3 pounds. II.) Direct cash payments, which can be used to purchase anything. The cash is enough to raise the consumer's income to the point where he will buy 3 pounds of broccoli. III.) Public broccoli distribution. The government will give away three pounds of broccoli to each consumer. Resale is prohibited. a. Draw and explain the income and substitution effects of each of the three plans, and their effects on broccoli consumption.

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go
to promote the consumption of brocc
the
community. The goal is to ensure that each resident eats at least 3 pounds of broccoli per
week. Consider only a single representative consumer, who purchases some broccoli at
market prices and would purchase 3 pounds of broccoli if either the price were low
enough or income were high enough. Assume broccoli is a good, characterized by the
usual smooth, convex indifference curves. Assume further that whatever the government
does has no effect on the market price for broccoli (this is a small community). The
proposals are:
I.) Broccoli subsidies. The consumer is to be given discount coupons good only for the
purchase of broccoli. The discounted price is set so that the consumer will purchase 3
pounds.
II.) Direct cash payments, which can be used to purchase anything. The cash is enough to
raise the consumer's income to the point where he will buy 3 pounds of broccoli.
III.) Public broccoli distribution. The government will give away three pounds of broccoli to
each consumer. Resale is prohibited.
a. Draw and explain the income and substitution effects of each of the three plans, and their
effects on broccoli consumption.
b. Explain how understanding the elasticity of demand and the income elasticity can help
you determine which program would cost the government more. What determines
whether the consumer will prefer plan II or plan III?
Transcribed Image Text:go to promote the consumption of brocc the community. The goal is to ensure that each resident eats at least 3 pounds of broccoli per week. Consider only a single representative consumer, who purchases some broccoli at market prices and would purchase 3 pounds of broccoli if either the price were low enough or income were high enough. Assume broccoli is a good, characterized by the usual smooth, convex indifference curves. Assume further that whatever the government does has no effect on the market price for broccoli (this is a small community). The proposals are: I.) Broccoli subsidies. The consumer is to be given discount coupons good only for the purchase of broccoli. The discounted price is set so that the consumer will purchase 3 pounds. II.) Direct cash payments, which can be used to purchase anything. The cash is enough to raise the consumer's income to the point where he will buy 3 pounds of broccoli. III.) Public broccoli distribution. The government will give away three pounds of broccoli to each consumer. Resale is prohibited. a. Draw and explain the income and substitution effects of each of the three plans, and their effects on broccoli consumption. b. Explain how understanding the elasticity of demand and the income elasticity can help you determine which program would cost the government more. What determines whether the consumer will prefer plan II or plan III?
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