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12. Let us explore the policy of Food Stamps. Note we will explore this further In the long-form section. Oftentimes, we reduce a complex economy

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12. Let us explore the policy of Food Stamps. Note we will explore this further In the long-form section. Oftentimes, we reduce a complex economy to a two-good economy by specifying one particular good and combining all other goods into a "numeralre" good that can be Interpreted as "everything else" on which the Individual spends money. Let us consider the preferences of an individual over "food" and "everything else". To keep our analysis simple, let us assume the individual originally has $30 to spend, a unit of food costs $10, and a unit of "everything else" also costs $10. Assume preferences are of the form: W Food 2 12 2 3 4 5 Everything Else Compare the optimal bundle under this baseline scenario to the scenario in which prices are Identical, the Individual still has $30, but the individual also has $20 worth of food stamps. Note food stamps can ONLY be spent on food and cannot be resold. With food stamps (compared to without), the individual A. Will purchase exactly $20 worth of extra food. B. Will purchase less than $20 worth of extra food. C. Will purchase more than $20 worth of extra food. D. None of the above

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