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Questions › DSE › DSE 2004 › Q16
2 marks, −1Microeconomics › Budget constraint and consumer equilibrium › Transfers, subsidies and taxes on the budgetHardabout 3 min

DSE 2004 Question 16: Budget constraint and consumer equilibrium

For the water-subsidy problem (u=xyu=xyu=xy, income 101010, bread price 333, water subsidy of Re. 111 per unit): the effect on the government's budget of the replacement of the water subsidy by the compensating income subsidy is

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For the water-subsidy problem (u=xy, income 10, bread price 3, water subsidy of Re. 1 per unit): the effect on the government's budget of the replacement of the water subsidy by the compensating income subsidy is (A) Deficit decreases by 15-√200 (B) Deficit decreases by 1-√56 (C) Deficit decreases by 10/3 (D) Deficit decreases by 11/4

Budget constraint and consumer equilibrium has come up 99 times in 7 exams since 2004.

What this question tests

This question is on Transfers, subsidies and taxes on the budget, part of Budget constraint and consumer equilibrium in Microeconomics.

How cash grants, in-kind transfers, price subsidies and excise taxes change the budget set and the consumer's welfare.

TestStop has 7 past-paper questions on this subtopic.

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Question from the DSE 2004 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.