Question: (Lump Sum vs. Excise Subsidy ) Use indifference curves to illustrate the superiority of a lump sum subsidy over an excise subsidy that distribute the

(Lump Sum vs. Excise Subsidy) Use indifference curves to illustrate the superiority of a lump sum subsidy over an excise subsidy that distribute the same amount to an individual subsidy receiver.

A. Label all important details and discuss the implications of your diagram.

B. On a separate diagram, show the effects of a targeted subsidy that lowers the prices of all goods by 20%

C. On a separate diagram, show the effects of a lump sum subsidy that increases income (or wealth) of all individuals by 20%.

D. Are either of these subsidies neutral? Why or why not?

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