Question

Intermediate Microeconomics Theory

Q1 Budget Constraints Assume below that there are two goods only, x and y, and that the consumer has an income of I and faces a competitive product market with prices p x

and p y . (The standard “grocery store” model) except as modified in each case.) Graphically illustrate the following budget constraints, briefly explaining what you are doing. (A) (5 points)

a) The government subsidizes the purchase of good y (NOT x) at a 50 percent rate.

b) The government gives the consumer an amount x0 which she cannot resell.

c) The government gives the consumer an amount x0 which she can resell to others if she wishes.

d) The customer receives a “quantity discount” of 50% off the regular price of x if she purchases more than a specified amount of x, say x0.

Answer 1