4. Starting from the initial unsubsidized equilibrium in the above problem (i.e. y=$4000 and p = $2/square foot), instead of offering the Smith's a proportional rent subsidy, the government gives the Smiths a monthly income grant equal to the monthly government expenditure you calculated in 1e. (Notice the change in government programs is thus revenue neutral.)

a. How much housing does the Smith household now consume?What is the Smith household's monthly rent?

b. How much does the Smith family now spend on other consumption goods?

c. Which program (the rent subsidy or the income grant) increases Smith welfare the most?Explain. (You may want to use a graph to make clear your answer.)