Consider the market for low-income housing. A low-income family has income of $M. The price of a unit of housing (measured in square feet) is Ph.

5a) Draw the budget constraint with housing on the x-axis and consumption of all other goods on the y-axis. Label the slope and intercepts. Add an indifference curve and indicate the optimal level of housing consumed.

5b) Now assume the government gives a housing subsidy. Specifically, the government will pay 25% of monthly rent for low-income families. Illustrate the familys new optimal bundle and their original optimal bundle using a new diagram.

5c) Now suppose that instead of the 25% subsidy, the government gives the family an unrestricted cash grant (assume the amount of the grant is just large enough to make the bundle chosen in part b affordable). Illustrate 1) the familys new optimal bundle, 2) their optimal bundle from part 5b and 3) their optimal bundle from part 5a.

5d) Compared to the subsidy, does the family consume more or less housing? Compared to the subsidy is the family better or worse off?