Question

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A government introduces a policy to subsidize its civilians in the consumption of

a non-discrete good, say ?. To avoid some people who may abuse the subsidy,

however, the government provides a 70% subsidy on the total expenditure on ?

only up to the consumption of 4 units per month; any extra consumption beyond

4 units and up to 8 units will only be eligible for a 30% subsidy; and no more

subsidy will be provided for any consumption beyond 8 units (i.e. if a consumer

wants to consume more than 8 units, s/he has to pay the full price for the extra

units).

Assume that the market price of ? is 10 per unit, and the average price of all

other goods in the economy, denoted by ?, is 4 per unit. If a consumer has a

monthly income of 76. Please draw this consumer’s budget line

Answer 1