Plot a budget line for a representative consumer
Managerial Economics
In order to spur consumer spending in 1998, the Japanese government considered
an $85 bil- lion voucher system whereby every Japanese consumer would receive
a shopping voucher that could be used to purchase Japanese products. For
simplicity, assume the following: Each consumer has wealth of 1 million yen,
consumers must allocate this wealth between con- sumption now (c1) and
consumption later (c2), the interest rate is zero, the voucher is worth
100,000 yen, and it can be spent only in the current period. If it is not
spent, it is lost.
a. Plot a budget line for a representative consumer both before and after the
voucher program (c1 and c2 are on the axes).
b. Do you expect that current consumption of a typical consumer will increase
by the full 100,000 yen of the voucher? Explain.
