Smith is given a voucher that can be spent only on textbooks.Smith has a budget constraint with textbooks measured along the horizontal axis and everything else on the vertical axis.Suppose everything else is comprised only of normal goods.Then
A)the voucher causes Smith to increase his spending on textbooks by more than the amount of the voucher.
B)Smith will most likely end up spending some more money on everything else after receiving the voucher.
C)Smith will not buy any textbooks because he can use the voucher for all other goods.
D)the voucher does not have any impact on Smith's consumption..

Question

Quizplus · Accepted Answer

The voucher effectively increases Smith's income for textbooks, freeing up some of his original budget to be spent on other normal goods, leading to an increase in spending on everything else.

Smith Is Given a Voucher That Can Be Spent Only