Tutorial 4 Solution - Tutorial 4 Solution 10 March 2009...

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Question 1 -Vouchers vs. Grants Depending on the degree of paternalism one considers necessary with regard to social assistance, some parties might favour the provision of vouchers rather than the provision of cash grants to individuals in need. At present, the Child Support Grant relies on a means test, i.e. only poorer children qualify, but there are no other conditions attached to the provision of the grant. Assuming we're considering providing a food-voucher or cash. ..and the objective of our policy is to reduce poverty, and have our representative consumer increase his/her expenditure on desirable goods. Please provide a graph which depicts the situation where a cash grant leads a grant eligible individual to be happier than the provision of a voucher. (Y is treated as a composite good) a) In your opinion -would you consider a cash grant or voucher to be more favourable in terms of poverty reduction? To what degree does your answer depend on what the composite good comprises? b) Do we care about food consumption as a means of poverty reduction, or maximising consumer welfare? If we care about maximising consumer welfare - give the poor cash. If we want to increase food consumption provide dedicated food vouchers (a costly system, especially if a black market for food vouchers exist/it's hard to verify what was actually purchased from vendors. Policing the voucher system costs money - so it may be worth providing the poor with cash, even if we acknowledge that some of the poor will make unwise expenditure decisions, as long as the benefits from the cash system on average
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This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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Tutorial 4 Solution - Tutorial 4 Solution 10 March 2009...

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