Use the following figure to answer the questions : Figure : 5-5 shows a family's preferences toward schooling,before and after a fixed-quantity subsidy.

-Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.Refer to Figure 5-5.After the fixed-quantity subsidy has been introduced,the family consumes:
A)its optimum level of other goods.
B)less than its optimum quantity of schooling.
C)more than its optimum quantity of schooling.
D)less than its optimum quantity of other goods.

Question

Use the following figure to answer the questions : Figure : 5-5 shows a family's preferences toward schooling,before and after a fixed-quantity subsidy.

-Prior to the subsidy,the family is in equilibrium at point J.Assume that public schooling cannot be supplemented with private tutoring.Refer to Figure 5-5.After the fixed-quantity subsidy has been introduced,the family consumes: 
A)its optimum level of other goods. 
B)less than its optimum quantity of schooling. 
C)more than its optimum quantity of schooling. 
D)less than its optimum quantity of other goods.

Quizplus · Accepted Answer

The fixed-quantity subsidy increases the family's budget line, but it does not change the family's preferences. Therefore, the family will consume more of the subsidized good (schooling) and less of the other good.

Use the Following Figure to Answer the Questions : Figure