Question: Consumer optimization Graph a consumer's budget constraint with income = $Y, Price of dental visits = $X, Price of all other goods = $1. Add

  1. Consumer optimization
    1. Graph a consumer's budget constraint with income = $Y, Price of dental visits = $X, Price of all other goods = $1.
    2. Add an indifference curve containing the consumer's optimum point. Label the curve IC1, label the optimum point A.
    3. Say the consumer obtains dental coverage. They pay no premium for the coverage, and it lowers the price they must pay for a dental visit. On the same graph, show what happens to the consumer's budget constraint.
    4. Draw a new indifference curve containing the consumer's new optimum consumption point, label it IC2 and label the new optimum point B.
    5. In three sentences or less, how does this illustrate an improvement in the consumer's wellbeing?
    6. If economists considered this subsidy of dental insurance to be efficient, that would imply that the marginal private benefit of dental insurance is [GREATER THAN OR LESS THAN] the marginal social benefit of insurance?

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