Save Open Spaces (SOS) is a non-profit organization that promotes protection of undeveloped land. They

perform two primary activities: purchasing undeveloped land for preservation and lobbying Congress for
additional protection for undeveloped land. SOS has a budget of $600,000. Currently, two-thirds of their
budget goes to purchasing land, and one-third to lobbying.
1. Draw a budget constraint and indifference curve for SOS 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. Be sure to show the endpoints of the budget constraint, as well as spending on land
preservation and lobbying.
2. Irwin M. Green, a rich philanthropist with an interest in environmental issues, offers SOS 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 (1). Then, show how the budget constraint changes after SOS receives the $100,000 grant. Add an
indifference curve showing SOSs distribution of activities after receiving the grant. Will the amount
of land purchased by SOS increase by $100,000? Why or why not?

1. In the current situation, two-thirds of the budget goes to purchasing land for preservation and one-third goes to lobbying. To draw the budget constraint and indifference curve, we can assume that the maximum utility is achieved with this balance of activities.

Let's assume that the budget for land preservation is represented by 'x' and the budget for lobbying is represented by 'y'.

The budget constraint can be drawn as a straight line connecting two points: (600,000, 0) and (0, 200,000). The x-intercept represents the total budget allocated to land preservation, while the y-intercept represents the total budget allocated to lobbying.

The indifference curve represents the combinations of land preservation and lobbying that give the same level of utility to SOS. It could be a convex curve, indicating diminishing marginal utility of each activity.

2. After receiving the $100,000 grant from Irwin M. Green, SOS will have an additional budget for land preservation. However, the grant cannot be used for lobbying activities.

Reproducing the previous illustration, we can add a new point representing the grant: (100,000, 0). This new point connects with the existing budget constraint, forming a straight line that intersects the y-axis at (0, 200,000), just like before.

However, the indifference curve will change. Now, SOS has more budget for land preservation, which means they can purchase more land. This will lead to a shift in the indifference curve towards the land preservation axis, indicating a higher level of utility.

The amount of land purchased by SOS will not increase by exactly $100,000, because the grant cannot be used for lobbying activities. The final allocation of activities will depend on SOS's preferences and the slope of the indifference curve. It's possible that SOS will allocate a portion of the grant towards lobbying, but the majority will likely be spent on purchasing land.

To draw the budget constraint and indifference curve for SOS, we can assume that the x-axis represents land preservation and the y-axis represents lobbying.

1. Budget constraint: The budget constraint represents the different combinations of land preservation and lobbying that SOS can afford with their given budget of $600,000. Since two-thirds of the budget goes to land preservation and one-third goes to lobbying, we can divide the budget as follows:

Land Preservation (x-axis): 2/3 * $600,000 = $400,000
Lobbying (y-axis): 1/3 * $600,000 = $200,000

So, the budget constraint line starts at the point (0, $200,000) and ends at the point ($400,000, 0). This line represents all the possible combinations of land preservation and lobbying that SOS can afford with their current budget.

2. Indifference curve: The indifference curve represents the trade-offs or preferences of SOS between land preservation and lobbying. Since the current balance of activities maximizes the utility of the organization, the indifference curve would be tangent to the budget constraint.

Now, let's consider the $100,000 grant from Irwin M. Green. This grant can only be used for land preservation and cannot be used for lobbying activities.

After receiving the grant, the budget for land preservation would increase. The new budget for land preservation is:

Land Preservation (x-axis): $400,000 + $100,000 = $500,000
Lobbying (y-axis): $200,000 (remains the same)

The new budget constraint line starts at the point (0, $200,000) and ends at the point ($500,000, 0).

The indifference curve representing the new distribution of activities would still be tangent to the new budget constraint. SOS can now afford to purchase more land for preservation, as the budget for land preservation has increased by $100,000. However, it does not necessarily mean that they will purchase exactly $100,000 worth of land more than previously, as the specific point on the indifference curve will depend on their trade-offs and preferences.

In summary, after receiving the grant, the amount of land purchased by SOS will increase to some extent since their budget for land preservation has increased. However, the exact increase will depend on their preferences and trade-offs represented by the specific point on the indifference curve.