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The U.S. government spends over $15.8 billion on its Food Stamp Program to help many needy Americans. The average food stamp benefit is about $170 per month. Assume that, in the absence of food stamps, the average consumer must divide $500 in monthly income between food and "all other goods" such that the following budget constraint holds: $500=$10A+$5F, where A is the quantity of "all other goods," and F is the quantity of food purchased. Using the vertical axis for "all other goods," draw the consumer's budget line in the absence of the Food Stamp Program. What is the market rate of substitution between food and "all other goods"? On the same graph, show how the Food Stamp Program alters the average consumer's budget line. Would this consumer benefit from illegally exchanging food stamps for cash?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939822

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