People derive utility in their lives from consuming goods, g, and clean air, a (measured as the number of particulates removed per m3).

People derive utility in their lives from consuming goods, g, and clean air, a (measured as the number of particulates removed per m3). Suppose a representative consumer’s utility function over these two goods is U (g, a(  = g.6a.4

Suppose the price of consumer goods equals $20 and the price of clean air (aka the abatement cost) is calculated to be $60. Income equals $1,500.

  1. A)
  2. Sketch the consumer’s budget constraint and the indifference curve that shows to the optimal  utility with clean air on the x-axis and all other goods on the y-axis. Make sure to write out the budget constraint intercepts and label the optimal bundle.
 
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