A) Martha purchases food (F) and other goods (Y) with the utility function U(F,Y)=FY . Her income is 24. The price of the food is N$2 and the price of other goods N$1.

1. How many units of food does she consume when she maximizes utility?
2. The government has recently completed a study suggesting that, for a healthy diet, every consumer at least F=1 units of food. The government is considering giving a consume like Martha a cash subsidy that would induce her to buy F=14. How large would the cash subsidy need to be? Show her optimal basket with the cash subsidy on an optimal choice diagram with F on the horizontal axis and Y on the vertical axis.

B) As an alternative to the cash subsidy in part 2, the government is also considering giving consumers like Martha food stamps, that is, vouchers with a cash value that can only be redeemed to purchase food. Verify that if the government gives her a voucher of N$ 28, she will choose F=14. Illustrate her optimal choice on an optimal choice diagram. (You may use the same graph you drew in A) part 2.