Problem 3 Consider a low-income family with a budget of = 100 to spend on starch food (x) and protein food (y). The price of starch food is = 2, and the price of protein food is = 5.

a. In a diagram, draw the family's budget constraint. In your graph, clearly label the numerical value of both intercepts. What is the cost of starch food in terms of units of protein food? Write the expression of the budget line. The family is rational and has well-behaved preferences. With a budget of I = 100, at the current prices the family buys 40 units of starch food and 4 units of protein food.

b. Add an indifference curve to your diagram and illustrate the family's optimal choice. Along the axis, clearly label the optimal quantity of starch food and protein food With this budget, the family cannot meet the Basic Metabolic Requirements of all its members. A Non-Governmental Organization decides to support the family's food consumption. Since starch food provides more calories per unit of expenditure, the NGO decides to subsidize the family's consumption of starch food. The NGO starts a program where the local grocery stores charge families only $1 per unit of starch food and the NGO pays the other dollar. This arrangement lowers the family's price of starch food to $1.

c. In your graph, illustrate how the NGO's program affects the family's budget line. What is the relative price of starch food now? At the new price for starch food, the family lowers its consumption of starch food to 35 units. This fact surprises the NGO's officials.

d. In your diagram, add an indifference curve to illustrate the family's new optimal choice.

e. What was the effect of the NGO's program on the family's consumption of protein food? Would you say that the NGO reached its goal of supporting the family's food consumption?