Since 1979, low-income recipients have been given food stamps without charge. However, before 1979, people bought food stamps at a subsidized rate. For example, to get $1 worth of food stamps, a household paid about 40¢ (the exact amount varied by household characteristics and other factors). What is the budget constraint facing an individual if that individual may buy up to $100 per month in food stamps at 40¢ per each $1 coupon? Compare this constraint to the original budget constraint with no assistance and the budget constraint if the individual receives $100 of food stamps for free. Assume the individual has income of $120 per month. 1.) Using the multipoint curved line drawing tool, graph the budget constraint facing this food stamp recipient with subsidized food stamps. Label this line 'L₁'. 2.) Using the line drawing tool, graph the budget constraint with no food stamp assistance. Label this line 'L₂. 3.) Using the multipoint curved line drawing tool, graph the budget constraint with $100 in free food stamps. Label this line 'L3.' Carefully follow the instructions above, and only draw the required objects. Expenditures on other goods in dollars per month 200- 180- 160- 140- 120- 100- 80- 60- 40- 20- 0- 20 40 60 80 100 120 140 160 180 200 220 Market value of food purchased in dollars per month 0 Q After plotting the final point of your multipoint curve, press the Esc key on your keyboard to end the line
Since 1979, low-income recipients have been given food stamps without charge. However, before 1979, people bought food stamps at a subsidized rate. For example, to get $1 worth of food stamps, a household paid about 40¢ (the exact amount varied by household characteristics and other factors). What is the budget constraint facing an individual if that individual may buy up to $100 per month in food stamps at 40¢ per each $1 coupon? Compare this constraint to the original budget constraint with no assistance and the budget constraint if the individual receives $100 of food stamps for free. Assume the individual has income of $120 per month. 1.) Using the multipoint curved line drawing tool, graph the budget constraint facing this food stamp recipient with subsidized food stamps. Label this line 'L₁'. 2.) Using the line drawing tool, graph the budget constraint with no food stamp assistance. Label this line 'L₂. 3.) Using the multipoint curved line drawing tool, graph the budget constraint with $100 in free food stamps. Label this line 'L3.' Carefully follow the instructions above, and only draw the required objects. Expenditures on other goods in dollars per month 200- 180- 160- 140- 120- 100- 80- 60- 40- 20- 0- 20 40 60 80 100 120 140 160 180 200 220 Market value of food purchased in dollars per month 0 Q After plotting the final point of your multipoint curve, press the Esc key on your keyboard to end the line
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.2P
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