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spend on sugar and the price of store-brand sugar is $1 per pound and the price

spend on sugar, and the price of store-brand sugar is $1 per pound and the priceof producer-brand sugar is $2 per pound. How much of each type of sugar willbe purchased? How would your answer change if the price of store-brand sugarwas $2 per pound and the price of producer-brand sugar was $1 per pound?The U.S. government spends over $15.8 billion on its Food Stamp Program toprovide 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?

Apr 30 2020 View more View Less

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