Suppose you are the manager of a program that administers food benefits to low- incomeprogram participants. The programs goal is to increase participants food intake throughallowing them to purchase more food than they would otherwise be able to afford theprogram pays 50% of their food purchase. An opinionated analyst thinks participants willsimply use the voucher to offset their grocery bill (i.e. the vouchers will be a pureincome effect) and will purchase the same amount of food as they would without thebenefit. Graphically and with words explaining the graph, using budget constraints andtypical indifference curves, show why for at least some participants, this is unlikely to bethe case. To make your case, assume participants have preferences for two goods (foodand a composite good made up of all other goods). Assume participants value both foodand all other goods and like a combination of both goods (preferences display convexity). Hint: first graph a typical budget constraint and indifference curves with no voucher, withfood and all other goods on the y-axis and x-axis, respectively (does not matter whichyou put where it does not alter the analysis). Hint - Hint: Now shift the budget constraint considering the voucher and add the sameindifference curves (remember these indifference curves do not change the participantsdo not have sudden preference reversals -- this is the continuity assumption).
Suppose you are the manager of a program that administers food benefits to low- incomeprogram participants. The programs goal is to increase participants food intake throughallowing them to purchase more food than they would otherwise be able to afford theprogram pays 50% of their food purchase. An opinionated analyst thinks participants willsimply use the voucher to offset their grocery bill (i.e. the vouchers will be a pureincome effect) and will purchase the same amount of food as they would without thebenefit. Graphically and with words explaining the graph, using budget constraints andtypical indifference curves, show why for at least some participants, this is unlikely to bethe case. To make your case, assume participants have preferences for two goods (foodand a composite good made up of all other goods). Assume participants value both foodand all other goods and like a combination of both goods (preferences display convexity). Hint: first graph a typical budget constraint and indifference curves with no voucher, withfood and all other goods on the y-axis and x-axis, respectively (does not matter whichyou put where it does not alter the analysis). Hint - Hint: Now shift the budget constraint considering the voucher and add the sameindifference curves (remember these indifference curves do not change the participantsdo not have sudden preference reversals -- this is the continuity assumption).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose you are the manager of a program that administers food benefits to low-
incomeprogram participants. The programs goal is to increase participants food intake
throughallowing them to purchase more food than they would otherwise be able to afford
theprogram pays 50% of their food purchase. An opinionated analyst thinks participants
willsimply use the voucher to offset their grocery bill (i.e. the vouchers will be a pureincome
effect) and will purchase the same amount of food as they would without thebenefit.
Graphically and with words explaining the graph, using budget constraints andtypical
indifference curves, show why for at least some participants, this is unlikely to bethe case. To
make your case, assume participants have preferences for two goods (foodand a composite
good made up of all other goods). Assume participants value both foodand all other goods and
like a combination of both goods (preferences display convexity). Hint: first graph a typical
budget constraint and indifference curves with no voucher, withfood and all other goods on the
y-axis and x-axis, respectively (does not matter whichyou put where it does not alter the
analysis). Hint - Hint: Now shift the budget constraint considering the voucher and add the
sameindifference curves (remember these indifference curves do not change the participantsdo
not have sudden preference reversals -- this is the continuity assumption).
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