Scenario 3 Suppose the government implements an income support program with the intention of making sure residents are able to purchase sufficient food. The government pays a cash benefit to all individuals with incomes less than $1000 according the following formula: cash benefit (CB) = $200 – 0.2*(earned income(I)) Households spend all of their income on food (F) and other goods (X). The price of food and other goods are normalized to 1. A households budget constraint is F + X = CB + I Households have the following preferences: U = 0.25*ln(F) + 0.75*ln(X) Refer to Scenario 3 Suppose a household has earned income of $300. How much does this household receive in benefits? and how much does the household spend on food?
Scenario 3
Suppose the government implements an income support program with the intention of making sure residents are able to purchase sufficient food. The government pays a cash benefit to all individuals with incomes less than $1000 according the following formula:
cash benefit (CB) = $200 – 0.2*(earned income(I))
Households spend all of their income on food (F) and other goods (X). The price of food and other goods are normalized to 1. A households budget constraint is
F + X = CB + I
Households have the following preferences:
U = 0.25*ln(F) + 0.75*ln(X)
Refer to Scenario 3
Suppose a household has earned income of $300. How much does this household receive in benefits? and how much does the household spend on food?
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