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Q1) U.S. government spends over $15.8 billion on its Food Stamp Program to give millions of Americans with means to purchase food. These stamos are redeemable for food at over 160,000 store locations throughout nation, and they can't be sold for cash or used to buy nonfood items. Average food stamp benefit is about $170 per month. Assume that, in absence of food stamps, average consumer should divide $500 in monthly income between food and "all other goods" such that the following budget constraint holds: $500 = $10A + $5F, where A is quantity of "all other goods" and F is quantity of food purchased. Using vertical axis for "all other goods", draw consumer's budget line in absence of food stamp program. Determine the market rate of substitution between food and "all other goods"? on same graph, illustrate how food stamp program alters average consumer's budget line. Would this consumer benefit from illegally exchanging food stamps for cash? Describe.

Microeconomics, Economics

  • Category:- Microeconomics
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