Question

The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Let’s say the program costs $10,000 per recipient family.

If the government gave each recipient family a $10,000 check instead of enrolling them in the Medicaid program, most of these families likely (would/would not) spend the full sum on health insurance.

This result suggests that we probably(should/ should not) value in-kind transfers at the price the government pays for them in determining the poverty rate.

Because the benefit of Medicaid to its recipients is likely(lower/highe)than its cost, it (must be worse/might be better) to give the poor cash transfers instead.

Answer 1

Most of these families likely would not spend the full sum on health insurance. This is because a cash has several uses and in fact no family is willing to spend the entire cash on a single good but will try to distribute it among several goods.

This result suggests that we probably should not value in-kind transfers at the price the government pays for them in determining the poverty rate. This is because people are not responsive enough and the benefits are outweighed by the cost.

Because the benefit of Medicaid to its recipients is likely lower than its cost, it might be better to give the poor cash transfers instead. This cash transfer will help the poor more which is helpful because they can use the cash in raising their standards.