Problem
A community is considering how to allocate expenditures between education and other goods. Draw the budget constraint, putting "education" on the horizontal axis, and "other goods" on the vertical.
a. Contrast the budget constraint of a poor community with that of a richer community. Using indifference curves, explain why a poorer community is likely to spend less on education than a richer community.
b. Show how the deductibility of property taxes-used to finance public education-affects the budget constraints of the two communities. How does it affect choices? If the price elasticity of the demand for education is unity (1), what should be the effect on the demand for education in a community in which the median voter is in the 83 percent marginal tax bracket? in the 15 percentage tax bracket?
c. Assume now that the poor community is subsidized (and the rich community taxed) so that extra educational expenditures it gets from a 1 percent tax is the same as that of a rich community. Now draw the budget constraints. Will the poorer community continue to spend less on education than the richer community? What does your answer depend on?
d. Whose indifference curve is relevant for the analysis?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.