In the United States, one of the largest welfare programs is the Supplemental Nutrition
Assistance Program (SNAP)1
representing the second largest in-kind transfer program
for individuals in the US. From the abstract of the study we are told “[a] 1% increase
in benefits per population raises grocery prices by a persistent 0.08%. A calibrated
partial-equilibrium model implies a marginal benefit dollar raises a recipient’s
surplus
consumer’s surplus by $0.05.” In other words, increasing the size of the in-kind transfer
leads to higher prices. This higher price results in a larger surplus for grocery stores and
a lower consumer surplus for individuals not participating in SNAP. Those individuals
who participate in SNAP can increase their overall consumer surplus as they have
access to more goods, despite the higher price. This result is estimated using the
nearly 100% redemption of the SNAP benefits (i.e. assuming the benefit goes directly
to those in the SNAP program).
The welfare programs the Canadian government runs tend to provide a cash transfer
as opposed to an in-kind transfer system2
. Any direct cash transfer program would not
limit the types of goods that can be purchased/accessed whereas the SNAP program
can only be used to access certain types of food approved by the government. Not
discussed in the article is the challenge of a gray market where individuals will trade
the in-kind goods provided by SNAP for money implying the SNAP participants arenot actually receiving all of the in-kind goods.
• Question: If the US moved from using SNAP to giving the same $ value benefits
to those with lower income (i.e. adopted a program more like the Canadian programs) explain what you would expect would happen in the market for groceries
and the welfare measures (i.e.
⋆ Note:
It is likely helpful to consider if the $0.70 increase per dollar is a correct
estimate given the existence of a gray market (a sketch of this market may be
helpful, consider what the maximum price people would pay for these illegal
in-kind goods when sketching the
Your answer should focus on both individuals and the market (hint: think
2 types of budget constraints versus supply and demand). The impact on
welfare from the consumer perspective goes beyond the market for groceries
and your answer should include that information.
Your answer must incorporate the information given (e.g. give a comparison
relative to the estimated benefits of the SNAP program such as: “do you
expect PS to increase or decrease” and explain why).
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