Question

Task 6: Effects of Government Policies on Consumer Welfare III.......................

Federal housing choice vouchers ($19 billion in 2015) and food stamps ($74 billion in 2014) are two of the largest in-kind transfer programs for the poor. Many poor people are eligible for both programs: 30% of housing assistance recipients also used food stamps and 38% of food stamp participants also received housing assistance (Harkness and Newman, 2003). Suppose Jill’s income is $500 a month, which she spends on food and housing. The prices of food and housing are each $1 per unit. Draw her budget line without housing vouchers and without food stamps. If she received $100 in food stamps and $200 in a housing subsidy (which she can spend only on housing), how do her budget line and opportunity set change?

Answer 1

Consider the given problem here there are two goods food and housing. Now Jill has $500 of income and price of housing and food are same which is $1.  

In the above figure, the vertical axis measure the housing per month and horizontal axis measure the food per month.

In the above figure, L1 indicates budget line of Jill without food stamps and federal housing support. That is, since the income is 500, budget line will be

Housing + food = 500

In the above figure, L2 indicates the budget line with $100 in food stamps, and a $200 housing subsidy.

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