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U = v*

y

x

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dx(px,py,I)

I/py

I/px

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6.1#6

y

U0

Hicksian demand

I/px3 I/px2 I/px1 x

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All other 7#1

goods

I/pA

Ucash

Ustamps

I/pF Fstamp+I/pF Food

Food

subsidy

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Graph 53

A PF

DWL

DWL

F

U1

U2

F2*F1

* Fmin

Slope of U1 at F1*

Valuation

of FminF1*

Slope of U1 at Fminunits of

food Valuation of Fmin-

F1* units of food

F1* Fmin

FIndifference Map Compensated Demand

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p

$1

50c

7#3

Willing to sell food stamps

Infinite supply

if p >1

Willing to buyfood stamps

Q

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MIT OpenCourseWarehttp://ocw.mit.edu

14.03 / 14.003 Microeconomic Theory and Public Policy

Fall 2010

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