Question

Question 6

The government of Poortopia is concerned about the impact of pervasive poverty on the health of its citizens. It is particularly concerned about the rates of malnutrition and starvation being experienced by its citizens. In order to combat this problem, the government has decided to implement a food subsidy scheme. It’s citizens will now be paid a specific subsidy of s per unit of food they consume, where s is less than the prevailing market price of food. In order to deter a run on food, the government has also decided to set a cap on food purchases equal to F. Joe is a citizen of Poortopia. Prior to the introduction of the food subsidy and food consumption cap policies, Joe chose to consume exactly F units of food. Food is a normal good for Joe. Using a budget-line/indifference-curve diagram, illustrate the impact of the food subsidy and food consumption cap policies on Joe’s consumption behaviour and welfare. Indicate the size of the food subsidy that is received by Joe and the impact that it has on Joe’s welfare. How would your answers change if the government only implemented the food subsidy component of the policy change and did not impose the food consumption cap?

(Hint: You might like to assume that there are two commodities: food and “other consumption”. You might also like to use “other consumption” as the numeraire commodity and set its price equal to one.)

Question 6 The poverty on the health of its citizens. It is particularly concerned about the rates of malnutrition and starvation being experienced by its citizens. In order to combat this problem, the govenment has decided to implement a food subsidy scheme. It's citizens will now be paid a specific subsidy of s per unit of food they consume, where s is less than the prevailing market price of food. In order to deter a rum on food, the government has also decided to set a cap on food purchases equal to F. Joe is a citizen of Poortopia. Prior to the introduction of the food subsidy and food consumption cap policies, Joe chose to consume exactly F units of food. Food is a normal good for Joe. Using a budget-line/indifference-curve diagram, illustrate the impact of the food subsidy and food consumption cap policies on Joe's consumption behaviour and welfare. Indicate the size of the food subsidy that is received by Joe and the impact that it has on Joe's welfare. How would your answers change if the governmnt only implemented the food subsidy component of the policy change and did not impose the food consumption cap? government of Poortopia is concerned about the impact of pervasive Hint: You might like to assume that there are two commodities: food and ot her consumption". You might also like to use "other consumption" as the numeraire commodity and set its price equal to one.)

Answer 1

Expt. No. Page No. e gauernment ot Poovtopia has decided to pay o The qovue uboidy ot &pex unit Citigens I qouernment has also decided to set afood cap on purchases equal toF.ince pribs to the ienpim introcduc tion o the subsidy Toe 's consumphon ot Food consumec 6u he n ovder to detev a vun on toad the aad ubsidy does not atlet his 2 was alrecad which is illustvated in tic. vanti where epesents the inital pnice al ushich Ise baught cquantity Fot tood At P which is the Sulbaick as the gauer Ll cap on puv chane above an had only int oduced cane she Covernmen oe would have Subsidy and hot the tood cap

Fig A 3 刁 x 3 Quantit Good X where Food subsidy -P, Cop on food purchadrd qvanhty is F.