Consume only two goods–food and other goods

Assignment Help Business Economics

Reference no: EM131392185

Consider a household that consume only two goods – food and “other goods” – that are each normal goods The income of the household is $120, the price of food is $10 and the price of “other goods” is $20. The household always consumes 50 percent of its income (or income plus value of coupon) on food and 50 percent on other things.

The government is considering three policies designed to raise food consumption. -- A transfer of $40 in cash to the household

-- A coupon that can be used only to consume 4 units of food (and costs government $40) -- A subsidy of $4/unit on food

1. How much food and “other goods” does the household consume in the initial situation?

d) 6 food, 3 other goods

2. If the government gives a transfer of $40 in cash to the household, how much food and “other goods” does the household consume?

d) 8 food, 4 other goods

3. If the government gives a coupon for 4 units of food to the household, how much food and “other goods” does the household consume?

e) Not Given

4. Between the $40 transfer and the coupon for 4 units of food, under which policy does the household consume more food?

c) Neither, consumption of food is the same d) Cannot be determined

5. If the government gives a subsidy of $4/unit on food (and there is no other transfer – i.e. income is $120) how many units of food does the household purchase?

b) 10 units

6. Under which policy does the government spend the least amount of money towards the food consumption of this household? [Note: The initial situation is not included in the comparison] a) Transfer of $40

d) None – they all cost the same

7. If the government wants the best combination of spending as little money as possible and raising the food consumption of the household as much as possible, which policy should it adopt?

c) Subsidy of $4/unit

Reference no: EM131392185

Questions Cloud

Contrast income inequality : Explain how to construct and interpret a Lorenz curve for the distribution of income and wealth; discuss the factors that explain the distribution of income in the US and compare and contrast income inequality in US with other countries.

Consider transportation cost-advertising cost and imports : Suppose that the (national domestic) four-firm concentration ratio of Industry X is much higher today than it was 50 years ago. Explain why Industry X may be more competitive today. Consider transportation cost, advertising cost, and imports in your ..

Statements regarding absolute advantage : Suppose that the United States and Italy are considering trade in two products: grain and oranges. Suppose that before trade, the United States produces 800 million bushels of grain and 200 million bushels of oranges. Which of the following statement..

Expensive to reduce its sulfur dioxide emissions : Firm A finds it very expensive to reduce its sulfur dioxide emissions, while Firm B finds it very cheap to reduce its sulfur dioxide emissions. If a program of tradable pollution permits was enacted, we would most likely see

Consume only two goods–food and other goods : Consider a household that consume only two goods – food and “other goods” – that are each normal goods The income of the household is $120, the price of food is $10 and the price of “other goods” is $20. How much food and “other goods” does the house..

Currently without health insurance coverage : Tom is currently without health insurance coverage. He derives utility (U) from his income (Y) according to the following function: U=2(Y1/4). Supppose Tom must pay a premium of $3,000 per year for health insurance coverage. Would he buy health insur..

The pursuit of a zero-pollution environment : From an economic standpoint, the pursuit of a zero-pollution environment is

Predictions of the solow growth model : Construct time series plots of real GDP, the ratio of consumptionto GDP, and the ratio of investments to GDP. In these plots, does what you see conform to the predictions of the Solow growth model? Explain why or why not.

Since delivery is to occur after susan becomes an adult : Susan, aged 16, owns a rare violin. Eric knows Susan is 16 and contracts with Susan that she will sell him the violin for $1,000 with delivery to take place when Susan is an adult. When Susan seeks to disaffirm this contract, Eric asserts that since ..

User Account

All Pages