2. Consider two households, one with an income twice as large as the other. Both households...

 

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2. Consider two households, one with an income twice as large as the other. Both households pay the equivalent of 5% of their income to consume free (public) education to the quantity PS (where PS >0). After public education, households have the option to consumer extra-curriculars. Wealthier households pay the full price, Pec, whereas lower income households pay a subsidized price, .5Pec. a. Use AOG on the vertical axis and Educational Services (to include both public school and extra curricular on the horizontal surface. Draw the budget constraints for both higher income and lower income households. Be sure that any important points are labeled clearly. b. Given the lower price paid by lower income households, is it possible that they consume more extracurriculars? Explain your answer. 2. Consider two households, one with an income twice as large as the other. Both households pay the equivalent of 5% of their income to consume free (public) education to the quantity PS (where PS >0). After public education, households have the option to consumer extra-curriculars. Wealthier households pay the full price, Pec, whereas lower income households pay a subsidized price, .5Pec. a. Use AOG on the vertical axis and Educational Services (to include both public school and extra curricular on the horizontal surface. Draw the budget constraints for both higher income and lower income households. Be sure that any important points are labeled clearly. b. Given the lower price paid by lower income households, is it possible that they consume more extracurriculars? Explain your answer.

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a Lets denote the income of the lower income household as YL and the income of the higher income hou... View the full answer