Question

Starting with an initial BL, show CLEARLY shapes of consumer's new "budget boundary" with (i) a cash grant (CG) from government and (ii) a voucher for the same dollar amount as CG for good F measured horizontally. Label the othe good as Y.

Answer 1

With the cash grant, consumer's budget set increase. It is like enhanced income. Therefore, budget line shifts rightwards.

On the other hand, giving voucher for good F, can not lead to full shifting of budget line. Government is spending SME amount of cash grants on vouchers. Voucher can not be spent on Y, hence the y intercept remains same, and x intercept change. Dotted line budget line don't exist in case of vouchers given by government.