Q10.    A widget-rationing program requires that anyone who buys widgets first pay a lump sum for a license; i.e. the consumer cannot buy widgets without a license. The license allows the consumer to buy any number of widgets at the controlled price. The proceeds from the sale of the licenses are used to reduce income taxes for widget buyers and non-buyers alike.

With widgets on the x-axis and income on the y-axis, draw the budget constraint before and after the imposition of the license for a consumer who does not buy a license.

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Let Y be the income of the consumer and Pw be the price of the widge... View the full answer