Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / provide millions of Americans with the means to purchase food These stampsare redeemable f...

provide millions of Americans with the means to purchase food These stampsare redeemable for food at over 160000 store locations throughout the nation

provide millions of Americans with the means to purchase food. These stampsare redeemable for food at over 160,000 store locations throughout the nation,and they cannot be sold for cash or used to purchase nonfood items. The averagefood stamp benefit is about $170 per month. Suppose that, in the absence of foodstamps, the average consumer must divide $500 in monthly income betweenfood and “all other goods” such that the following budget constraint holds: $500 $10A + $5F, where A is the quantity of “all other goods” and F is the quantityof food purchased. Using the vertical axis for “all other goods,” draw the con-sumer’s budget line in the absence of the Food Stamp Program. What is the mar-ket rate of substitution between food and “all other goods”? On the same graph,show how the Food Stamp Program alters the average consumer’s budget line.Would this consumer benefit from illegally exchanging food stamps for cash?Explain.A recent newspaper circular advertised the following special on tires: “Buythree, get the fourth tire for free—limit one free tire per customer.” If a con-sumer has $500 to spend on tires and other goods and each tire usually sellsfor $50, how does this deal impact the consumer’s opportunity set?Upscale hotels in the United States recently cut their prices by 20 percent inan effort to bolster dwindling occupancy rates among business travelers. Asurvey performed by a major research organization indicated that businessesare wary of current economic conditions and are now resorting to electronicmedia, such as the Internet and the telephone, to transact business. Assume acompany’s budget permits it to spend $5,000 per month on either businesstravel or electronic media to transact business. Graphically illustrate how a20 percent decline in the price of business travel would impact this com-pany’s budget set if the price of business travel was initially $1,000 per tripand the price of electronic media was $500 per hour. Suppose that, after theprice of business travel drops, the company issues a report indicating that itsmarginal rate of substitution between electronic media and business travelis 1. Is the company allocating resources efficiently? Explain.

May 01 2020 View more View Less

Answer (Solved)

question Subscribe To Get Solution

Related Questions