Suppose That the Government Subsidizes Housing Expenditures of Low-Income Families

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The Answer is <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB3095/11eab6a8_3b56_dac3_9bd3_139fdc4a55da_TB3095_00.jpg" alt="  The current program yields the flatter budget constraint for the Cunninghams. The flatter budget constraint implies that the relative cost of housing is cheaper. This is due to the 50% government subsidy. Currently, the Cunninghams spend $250 on housing with the government matching with another $250. The utility maximizing choice is indicated in the diagram by point O. The proposed program would eliminate the government housing price subsidy. Thus, the relative price of housing would increase. This shifts the horizontal axis intercept in towards the origin. However, the proposed plan would pay a cash payment of $250 to the Cunninghams. This payment shifts the vertical axis intercept up. The Cunninghams may still choose to consume at point O as it is available with the proposed plan. However, the MRS at point O is less than the ratio of prices under the proposed plan. This implies the Cunninghams may increase utility by spending less on housing and purchasing more of all other goods. This is reflected by a movement to O' which corresponds with higher utility. Thus, the Cunninghams are better off with the proposed lump sum transfer policy." class="answers-bank-image d-block" rel="preload" > The current program yields the flatter budget constraint for the Cunninghams. The flatter budget constraint implies that the relative cost of housing is cheaper. This is due to the 50% government subsidy. Currently, the Cunninghams spend $250 on housing with the government matching with another $250. The utility maximizing choice is indicated in the diagram by point O. The proposed program would eliminate the government housing price subsidy. Thus, the relative price of housing would increase. This shifts the horizontal axis intercept in towards the origin. However, the proposed plan would pay a cash payment of $250 to the Cunninghams. This payment shifts the vertical axis intercept up. The Cunninghams may still choose to consume at point O as it is available with the proposed plan. However, the MRS at point O is less than the ratio of prices under the proposed plan. This implies the Cunninghams may increase utility by spending less on housing and purchasing more of all other goods. This is reflected by a movement to O' which corresponds with higher utility. Thus, the Cunninghams are better off with the proposed lump sum transfer policy.

Suppose That the Government Subsidizes Housing Expenditures of Low-Income Families

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Suppose That the Government Subsidizes Housing Expenditures of Low-Income Families

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Correct Answer:VerifiedShow Answer

Correct Answer:
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