For the water-subsidy problem, assuming that government funds have a positive opportunity cost, the government can make a Pareto improvement by
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2 marks, −1MicroeconomicsBudget constraint and consumer equilibriumTransfers, subsidies and taxes on the budgetHardabout 3 min
DSE 2004 Question 17: Budget constraint and consumer equilibrium
Answer and worked solution
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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.