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

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.2P

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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-
0
20 40 60 80 100 120 140 160 180 200 220
Market value of food purchased in dollars per month
After plotting the final point of your multipoint curve, press the Esc
key on your keyboard to end the line.

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