Question

iston to us time petrol amount eory allow us to ow it is attected ber saving. pay a higher in terest rate. elp explain whes er choice theory can help explain al assets an individual who is sayi bills, gold, and government pays part of ou allows the consumer to buy as many units as descu the subsidized price. Subsidies can also be made in the users may A decision to save (of LU UL form of cash, as a lump-sum Consumer transfer. Consumer A dec Consumption between various tim choice theory helps us discover that based on their arrange con Adaptations of consumer choice the own preferences, consumers will be better off if they receive cash. amine this decision and to see how it • Public schools offer another common form of sub- changes in earnings and in the interest ra sidy in which the government makes a certain quantity Co of a good available at no cost or below the market types of financial assets an individual who price. Voucher programs allow parents to purchase ed- the future should buy-stocks, Treasury bills ucation (with vouchers) at any school they choose. A so on. Indifference curves demonstrate the variety of possible consequences of a school voucher tween expected risk and return. Total utility program can be identified with the tools of consumer shed light on the way in which insurance reduce individuals' risk. rate the tradeoft be insurance operates to Draw the budget line for a higher interest rate to be receives on her saving 5.10 In a two-year period, A this year (year 1) and earning 2). She can borrow or lend a Suppose that Anna decides Show Anna's optimal consum tify the amount borrowed i year 2, consumption in year 5.11 From the position des Anna's earnings in year 11 vorable tax court ruling. H fect the amount she borrow her consumption in year 2 in year 1, will her year amount? Explain your ans choice theory. REVIEW QUESTIONS AND PROBLEMS 5.12 "A higher interest ra consumption." "A higher of present consumption." statements are correct. 5.13 "For a person who will increase consumptio reduce the amount save Questions and problems marked with an asterisk have solutions given in Answers to Selected Problems at the back of the book (pages 597-604). 5.1 Tony currently goes to the dentist twice a year at $150 per visit. His employer subsidizes Tony's purchases by paying half the cost of each dental visit in excess of one visit per year. (No subsidy is granted on the first visit.) Show how this affects Tony's budget line and his purchases of dental ser vices. Identify in a diagram how much Tony spends on den- tal work and how much his employer spends in subsidizing his consumption. *5.2 The government has $100 per month with which to subsidize waif-like supermodel Kate Moss's food consump- tion. It is considering two alternatives: giving Kate $100 worth of food stamps per month or paying part of the price of food, thereby lowering the price to Kate. In the case of the excise subsidy, the price is lowered to the point where the total cost of the subsidy is $100 per month. Which type of subsidy will benefit Kate more? Under which type of subsidy will she consume more food! 5.3 With an excise tax of $0.20 per six pack, Kristine sur chases three six-packs of Diet Coke per day. If the govem ment eliminates the excise tax and, instead, requires Kristine to pay $0.60 per day as a lump sum tax (the daily tax liability is $0.60 regardless of how much Diet Coke Kristine con sumes), how will Kristine's consumption pattern and welfare be affected? cance 5.4 How can the government reduce a consumers com sumption of schooling by providing schooling at no costrom plain in words and show in a diagram.

5.2 please

Answer 1

The government has two alternatives. And the excise subsidy's cost is $100, and the government has $100 as well to subsidize. So Kate will be more beneficial when she receives a food stamp worth $100 per month.

But, according to the consumption level, definitely the second alternative sounds well. Because, food stamps have some restrictions over things. So paying the prices partly with some assistance will be more beneficial one for Kate.