Lydia maximizes utility and spends all of her income on car services and other goods. Assume a weekly income equal to $1000 and that the price of car services equals $100/unit.
a. She currently spends $200 per week on car services. Draw the indifference mapping and budget constraint for this situation.
b. A new government policy, bailout for car firms, offers qualified car service buyers an additional free unit of car service by providing a coupon. Lydia decides to use the coupon and then reduces her consumption to one unit per week. Draw the indifference mapping and budget constraint for this situation. How would you explain this reduction in consumption?
c. Another program offers $100 cash and Lydia tries this program and consumes less than $100 in car services. Is this possible given her choice using the coupon program? Draw the indifference mapping and budget constraint for this situation.