Applications of Consumer Choice Theory 1. The federal government ...

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Applications of Consumer Choice Theory 1. The federal government wants to support education but must not support religion. To this end, it gives the University of Notre Dame $2 million with the stipulation that this money be used for secular (that is, not overtly religious) purposes only. The graph below shows Notre Dame's pre-federal-gif budget constraint and utility. Religious activities (millions of dollars) 12 6 6 12 Secular activities (millions of dollars) a)Reproduce the above diagram. On your diagram, show how the federal grant changes Notre Dame's budget constraint. b)Given the indifference curve drawn on the graph, would the university's welfare change if the grant came without the secular-use restriction? Why or why not?

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