Suppose that a group of Sonoma county buy local advocates propose a complementary currency that can only be used to purchase goods sold by locally based vendors. Assume that the complementary buy local currency is exchange on a dollar for dollar basis with the official U.S. currency.
a. Suppose that everyone in Sonoma County is required to replace a fixed amount of their income with the buy local currency. How will the buy local currency affect the typical consumers budget constraint? graph and all variables.
b. Use the budget constraint indifference curve paradigm to analyze the effect on optimal consumption choices of someone with a relative preference for local goods. Graph.
c. Use the budget constraint indiference curve paradigm to analyze the effect on optimal consumption choices of someone with a relative preference for non local goods. graph.
d. who are the winners and losers under the mandatory program? Specifically what consumers are made better off or worse off? Are local vendors made better off?.
e. Suppose instead that use of the Sonoma county buy local currency is completely voluntary. Who is the most likely to use this currency and what is the predicted effect? Specifically, what consumers are made better off and worse off? are local vendors made better off? graph.