SGF has an annual budget of $600,000. Currently two-thirds of their budget goes to
purchasing land, and one-third to lobbying.
a. Draw a budget constraint and indifference curve for SGF with land
preservation on the x-axis and lobbying on the y-axis. You can assume that the
current balance of activities maximizes the utility of the organization and that the price of a unit of land preservation and the price of a unit of lobbying
national governments are both $1. Be sure to label the endpoints of the budget
constraint, as well as current spending on land preservation and lobbying.
b)Irwin M. Green, a rich philanthropist with an interest in environmental
issues, offers SGF a $100,000 grant with the stipulation that the funds can only
be used to purchase new lands for protection. Thus, money from the grant
cannot be used to support lobbying activities. Reproduce your illustration from
part (a). Then, show how the budget constraint changes after SGF receives the
$100,000 grant. Add an indifference curve showing SGF’s distribution of activities
after receiving the grant.
c) Will the amount of land purchased by SGF increase by $100,000?
Explain why or why not.