Illustrate the impact of food stamps on joes budget

Reference no: EM13182453

Part I : Measuring Consumer Surplus, Equivalent Variation(EV), Compensating Variation(CV)

(1) The price of Steak Burritos in Chipotle here in Davis is $5.50 . I would be willing to pay $10 dollars for the first Steak Burrito, $8 for the second, $6.00 for the third ,$4.00 for the fourth , and nothing for the fifth or more burritos .

a. How many Burritos would I buy. (Ignore taxes here)

b. Compute my total consumer surplus , and illustrate using a graph.

c. If the price of steak burritos fall to $3.00, how many burritos would I buy and what is change in my total consumer surplus compared to the situation in b. Illustrate using a graph.

(2)Now the following demand function for good 1 : q1= 20-2p1+4Y

(a) Initially the equilibrium price is $=2 and income is $10. What is the total consumer surplus at equilibrium point? What if the demand function is q1=p1^-2Y

(b) If the government imposes consumption tax on the good that raised prices by $1, by how much will the consumer's surplus change?

(d) If you your income is $ 1million,you spend $100 on good 1, and income elasticity was 0.02, does it matter whether you use EV, CV, or consumer surplus to measure the change in consumer welfare in (b).

Part II Evaluating the Welfare Impact of Public Policy: The Case of Food Stamps

Joe earns $3000 per month, and he spends around $300 on food.

a. Illustrate the impact of food stamps worth $100 compared to a $100 cash transfer on Joe's budget set

b. Starting this month, Joe would receive food stamps worth $100 per month. How much more food would he buy this month if food on average costs $2 per unit.

c. How would your answer in (a) change if Joe actually receives $100 in cash.

Part III. Labor-Leisure Choice

a. Jack consumes two goods: food and leisure. He works for 8 hours per day and earns a wage of $8 dollars per hour. His rich uncles also give him around $20 per day. Illustrate Jack's choice of work and leisure using an indifference curve and a budget constraint.

Kassahun Melesse

b. If the hourly wage rate increases to $10, will Jack work for more hours? Answer the question by employing income and substitution effects and using a diagram.

c. If the government taxes 25% of Jack's wage income will Jack choose to work for more hours or less? Illustrate using a diagram.

Reference no: EM13182453

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