Question

Suppose the US government wishes to get low income households to make better nutritional choices in food, so it institutes a voluntary program for qualifying families that gives nontransferable vouchers for fresh vegetables, fresh fruit and fish equal in value to 20% of the household income.  

a. Putting fresh vegetables, fresh fruit and fish on the X axis, and all other purchases on the Y axis, draw a qualifying household’s utility maximizing choice.

b. For the qualifying household volunteers in part a, show their new utility maximizing point on the graph.

c. On the graph, show the amount of unrestricted income that would yield the same level of utility as in part b.

d. Would it be less or more expensive to use unrestricted income or vouchers if maximizing the recipients utility is the goal? Explain.

Answer 1