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Unformatted text preview: (c) Continue from part (b). Now assume these residents can engage in costless bargaining. Show how the efficient outcome can be achieved through bargaining. 3. A family consisting of a mother and two children has a weekly income of $500. The family spends all income on food and housing. The prices of food and housing are normalized to 1. The government is planning to use one of the following three programs to help this poor family: (1) Give this family a cash transfer of $300 per week. (2) Subsidize the rent: For each dollar spent on housing, government pays 50 cents. (3) Give the family housing vouchers worth $300 per week. (a) Draw the initial budget line and budget lines under three income assistance programs. (b) Under what circumstance program (2) is preferred to the other two programs? (c) Program (3) is never preferred to program (1). True/False. Explain....
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- Fall '06
- J Liu
- Public Good