The government considers a Help for Houshold scheme to provide help for the rising energy costs facing households. Two programmes are considered: (i) paying a fixed amount in £ to a typical household or (ii) subsidising the price of energy by reducing the price of energy from p to (1- t)p, for t positive and less than 1. Provide economic arguments against and in favour of each of the programmes. Illustrate the economic effect of each of the programmes in a separate graph where energy is on the horizontal axis and all other goods are on the vertical axis. Illustrate the income and substitution effect of each programme in this graph assuming that both goods are normal goods. If your goal is economic efficiency, which programme do you favour? Explain and justify your answer.

The government considers a Help for Houshold scheme to provide help for the rising energy costs facing households. Two programmes are considered: (i) paying a fixed amount in £ to a typical household or (ii) subsidising the price of energy by reducing the price of energy from p to (1- t)p, for t positive and less than 1. Provide economic arguments against and in favour of each of the programmes. Illustrate the economic effect of each of the programmes in a separate graph where energy is on the horizontal axis and all other goods are on the vertical axis. Illustrate the income and substitution effect of each programme in this graph assuming that both goods are normal goods. If your goal is economic efficiency, which programme do you favour? Explain and justify your answer.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter14: Environmental Economics

Section: Chapter Questions

Problem 14SQP

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