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Business, 11.02.2020 17:14 cooboy

Molly has $6000 in income, the price of food is $2 per unit, and the price of clothing is $4 per unit.

a. Draw Molly's budget constraint with food on the horizontal axis, and clothing on the vertical axis. How do you interpret the slope of her budget line?
b. Molly is now given a $2000 tied grant which must be spent on food. On the diagram from a, graph Molly's new budget constraint.
c. Molly is observed to spend exactly $2000 on food after she receives the grant. Where on the new budget constraint is Molly consuming?
d. Draw the associated indifference curve. Evaluate the following statement: "Molly must be worse off with the tied grant than she would be with an unrestricted grant of $2000 that she could spend as she pleased."

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