The Brady family have a weekly budget of €200 to be spent on Food (F) and Other Goods (OG), which are initially equally priced at €10 and €20 per unit, respectively. Given recent inflation, the government has concerns about the ability of large families to afford an adequate diet for children. Due to this, the government announces that when Food consumption exceeds 12 units, the government will subsidise food consumption so that the price per subsequent unit will be €5 for any family. With Food on the horizontal axis, show the family’s pre and post-scheme budget line. Can we definitively determine the family’s utility maximising consumption bundle as a result of the government scheme?
The Brady family have a weekly budget of €200 to be spent on Food (F) and Other Goods (OG), which are initially equally priced at €10 and €20 per unit, respectively. Given recent inflation, the government has concerns about the ability of large families to afford an adequate diet for children. Due to this, the government announces that when Food consumption exceeds 12 units, the government will subsidise food consumption so that the price per subsequent unit will be €5 for any family. With Food on the horizontal axis, show the family’s pre and post-scheme budget line. Can we definitively determine the family’s utility maximising consumption bundle as a result of the government scheme?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The Brady family have a weekly budget of €200 to be spent on Food (F) and Other Goods
(OG), which are initially equally priced at €10 and €20 per unit, respectively. Given recent
inflation, the government has concerns about the ability of large families to afford an adequate
diet for children. Due to this, the government announces that when Food consumption exceeds
12 units, the government will subsidise food consumption so that the price per subsequent unit
will be €5 for any family.
With Food on the horizontal axis, show the family’s pre and post-scheme budget line. Can we
definitively determine the family’s utility maximising consumption bundle as a result of the
government scheme?
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