Bobby, the brain, Heenan has income of $100. He consumes food (F) and clothes (C). His utility function is UFC. The price of food and clothes is one dollar per unit. He initially consumes fifty units of each. a. Draw a graph showing his equilibrium. b. Assume that his income is $100. He receives a food stamp worth $ 50. Would he prefer $150 in money income or $100 in income and a $50 food stamp? Are they the same? Justify your answer. Provide a graph. c. Now suppose he gets a food stamp of $300. Is he indifferent between an income $100 and a food stamp of $300 as compared to a money income of $400 without food stamps? Graph your answer.
Bobby, the brain, Heenan has income of $100. He consumes food (F) and clothes (C). His utility function is UFC. The price of food and clothes is one dollar per unit. He initially consumes fifty units of each. a. Draw a graph showing his equilibrium. b. Assume that his income is $100. He receives a food stamp worth $ 50. Would he prefer $150 in money income or $100 in income and a $50 food stamp? Are they the same? Justify your answer. Provide a graph. c. Now suppose he gets a food stamp of $300. Is he indifferent between an income $100 and a food stamp of $300 as compared to a money income of $400 without food stamps? Graph your answer.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Bobby, the brain, Heenan has income of $100. He
consumes food (F) and clothes (C). His utility function
is U = FC. The price of food and clothes is one dollar
per unit. He initially consumes fifty units of each. a.
Draw a graph showing his equilibrium. b. Assume that
his income is $100. He receives a food stamp worth $
50. Would he prefer $150 in money income or $100 in
income and a $50 food stamp? Are they the same?
Justify your answer. Provide a graph. c. Now suppose
he gets a food stamp of $300. Is he indifferent
between an income $100 and a food stamp of $300 as
compared to a money income of $400 without food
stamps? Graph your answer.
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