Lisa's Budget Line and Her Satisfaction Maximizing Market Basket, A

question 98

Essay

Lisa's budget line and her satisfaction maximizing market basket, A, are shown in the diagram below.
a. Suppose that Lisa is given $50 worth of coupons that must be spent on food. How will the coupons alter Lisa's budget line?
b. Suppose that Lisa is given $50 in cash instead of $50 in coupons. How will this alter Lisa's budget line?
c. Is Lisa indifferent between the food coupon and cash program, or does she prefer one program over the other? Draw an indifference curve to illustrate your answer.

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Definitions:

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