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Hi, Im not sure how to tackle this problem. Assume consumers are choosing between housing services (H) measured in square feet and consumption of all...

Hi,
Im not sure how to tackle this problem.
Assume consumers are choosing between housing services (H) measured in square feet and consumption of all other goods measured in dollars.
a. show the equilibrium position in the diagram?
b. suppose the gov't agrees to subsidize consumers by paying 50% of their housing cost. How will their budget line change? Show the new equilibrium?
c.Show in a diagram the minimum amount of income supplement the gov't would have to give individuals instead of a housing subsidy to make them as well off as they were in part b?
d. describe why the amount shown in part c is smaller than the amount paid in part b?

Thank you!
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Assume consumers are choosing between housing services (H) measured in square feet and
consumption (C) of all other goods measured in dollars.
a. show the equilibrium position in the diagram?
The...

Sign up to view the full answer

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