Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 27

Assume consumers are choosing between housing services (H) measured in square feet and consumption of all other goods (C) measured in dollars.
a. Show the equilibrium position in a diagram.
b. Now suppose the government agrees to subsidize consumers by paying 50 percent of their housing cost. How will their budget line change? Show the new equilibrium.
c. Show in a diagram the minimum amount of income supplement the government would have to give individuals instead of a housing subsidy to make them as well-off as they were in part b.
d. Describe why the amount shown in part c is smaller than the amount paid in subsidy in part b.