c) Suppose you only buy two goods, food (x) and clothing (y), and the government offers you 50 coupons for free food. Each coupon allows you to redeem it at any food store for one unit (such as kilogram) of food. The price of food, Px, is $5 per unit and the price of clothing, Py, is $10 per unit. The government prints your name on the coupon and it requires the store to check your photo ID to ensure your identity. Income is $400. d) Continue with part c): Suppose the government wants to cut administrative costs and would no longer print names on the 50 coupons it gives you. You can sell none, some or all of the coupons in the black market for $3 each. You get cash from selling these coupons. Clothing (4) Clothing (y) 20 20 Go 10 d 1 60 + X 80 100 food (x) food (x) 3
c) Suppose you only buy two goods, food (x) and clothing (y), and the government offers you 50 coupons for free food. Each coupon allows you to redeem it at any food store for one unit (such as kilogram) of food. The price of food, Px, is $5 per unit and the price of clothing, Py, is $10 per unit. The government prints your name on the coupon and it requires the store to check your photo ID to ensure your identity. Income is $400. d) Continue with part c): Suppose the government wants to cut administrative costs and would no longer print names on the 50 coupons it gives you. You can sell none, some or all of the coupons in the black market for $3 each. You get cash from selling these coupons. Clothing (4) Clothing (y) 20 20 Go 10 d 1 60 + X 80 100 food (x) food (x) 3
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.1P
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Transcribed Image Text:c) Suppose you only buy two goods, food (x) and
clothing (y), and the government offers you 50
coupons for free food. Each coupon allows you to
redeem it at any food store for one unit (such as
kilogram) of food. The price of food, Px, is $5
per unit and the price of clothing, Py, is $10 per
unit. The government prints your name on the
coupon and it requires the store to check your
photo ID to ensure your identity. Income is $400.
d) Continue with part c): Suppose the
government wants to cut administrative costs and
would no longer print names on the 50 coupons it
gives you. You can sell none, some or all of the
coupons in the black market for $3 each. You get
cash from selling these coupons.
Clothing (4)
Clothing (y)
20
20 Go 10 d
1
60
+
X
80
100
food (x)
food (x)
3
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