Question
In one country, the government has set out to improve the situation of poor families with children. One way the government can do this is
In one country, the government has set out to improve the situation of poor families with children. One way the government can do this is by giving poor families with children a subsidy that lowers the price of their food. (This can be done, for example, by offering poor families with children cheap and personally issued food vouchers that can only be used when purchasing food). The second way is to give the poor families with children a child allowance that they can use for whatever they want. Illustrate and compare how the benefit of families with children is affected if the government chooses to pursue a distribution policy with the help of cheaper food and a child allowance, respectively. Assume that the two measures cost exactly the same amount for the Treasury. What conclusions do you draw from your analysis? (Hint: use indifference curves and price lines.)
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