2. David has the utility function u(e,g) = 8,000ln(e) + g, where e represents money spent on education and g represents money spent on other goods. He has M = $50,000 to spend. (i) Suppose that the government gives David a lump-sum subsidy of $L. Find his optimal bundle. (ii) Now suppose that the government gives David a voucher for $Vworth of education and a lump-sum subsidy of $(L - V) instead. Find David's optimal bundle. (Assume V< L.)
2. David has the utility function u(e,g) = 8,000ln(e) + g, where e represents money spent on education and g represents money spent on other goods. He has M = $50,000 to spend. (i) Suppose that the government gives David a lump-sum subsidy of $L. Find his optimal bundle. (ii) Now suppose that the government gives David a voucher for $Vworth of education and a lump-sum subsidy of $(L - V) instead. Find David's optimal bundle. (Assume V< L.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![2. David has the utility function u(e,g) = 8,000ln(e) + g, where e represents money spent
on education and g represents money spent on other goods. He has M = $50,000 to spend.
(i) Suppose that the government gives David a lump-sum subsidy of $L. Find his optimal
bundle.
(ii) Now suppose that the government gives David a voucher for $V worth of education and
a lump-sum subsidy of $(L – V) instead. Find David's optimal bundle. (Assume V < L.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbdc50742-a0b1-402c-9a23-d05b31b6d274%2Fa8da6679-2ed0-4332-b6d1-ae639ffd9860%2F1a66xb9_processed.png&w=3840&q=75)
Transcribed Image Text:2. David has the utility function u(e,g) = 8,000ln(e) + g, where e represents money spent
on education and g represents money spent on other goods. He has M = $50,000 to spend.
(i) Suppose that the government gives David a lump-sum subsidy of $L. Find his optimal
bundle.
(ii) Now suppose that the government gives David a voucher for $V worth of education and
a lump-sum subsidy of $(L – V) instead. Find David's optimal bundle. (Assume V < L.)
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