Boomtown's Budget Allocation Decision
What are the factors affecting Boomtown's budget allocation decision?
Boomtown's citizens have $2 million to spend on park maintenance or private goods. How does the cost of park maintenance and the government subsidy impact their decision?
Factors Affecting Budget Allocation
Boomtown's budget constraint can be graphed with park maintenance on the x-axis and private goods on the y-axis. If Boomtown purchases 100 units of park maintenance, it lies on the budget constraint line. If the state government provides a subsidy, Boomtown's new budget constraint will have a flatter slope, allowing for more park maintenance.
(a) To graph Boomtown's budget constraint, we plot the quantity of park maintenance on the x-axis and private goods on the y-axis. The budget constraint is a straight line passing through points (200,0) and (0,200,000) with a slope of -20, representing affordable combinations of park maintenance and private goods.
(b) Choosing 100 units of park maintenance will be a point on the budget constraint line. Drawing the indifference curve requires knowledge of preferences to accurately depict it.
(c) With the subsidy, the new budget constraint will have a flatter slope. For every 2 units of park maintenance purchased, the government provides 1 for free, allowing Boomtown to purchase more park maintenance with the same budget. This will lead to a change in their allocation decisions.
Exploring Boomtown's Budget Allocation Decision
Boomtown, with $2 million to spend, faces the decision of allocating funds between park maintenance and private goods. The cost of park maintenance, priced at $10,000 per unit, influences their budget allocation. Choosing to purchase 100 units of park maintenance places them on the budget constraint line.
The state government's subsidy further impacts their decision-making process. By providing 1 unit of maintenance for every 2 units purchased by Boomtown, the government enables them to stretch their budget for park maintenance. This results in a flatter slope for the new budget constraint, allowing Boomtown to access more park maintenance with the same financial resources.
Understanding the interplay of cost, subsidy, and preferences is essential in analyzing how Boomtown's budget allocation decisions evolve. By considering these factors, Boomtown can make informed choices to enhance their community's well-being and quality of life.