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Saul has two types of expenditures: food and other goods. The price of food is $2 and the price of other goods is $3. Saul
Saul has two types of expenditures: food and other goods. The price of food is $2 and the price of other goods is $3. Saul has an initial income of $1,500. There are two types of welfare programs Saul can participate. The first one is a cash transfer program which would provide Saul $420 a month. The second one is an in-kind transfer program that provides a non-transferable $540 voucher to spend on foods. (a) (2 points) Assume Saul participates in the cash transfer program. Draw Saul's budget constraint with food on the x-axis. (b) (2 points) Assume Saul participates in the in-kind transfer program. Draw Saul's budget constraint with food on the x-axis. (c) (2 points) Draw a new figure with budget constraints from both programs. Draw indifference curves for the following scenarios: i) Saul is better-off with the cash program, ii) Saul is better-off with the in-kind program, and iii) Saul is indifferent between the two programs. Briefly explain the intuition behind Saul's choice for scenarios (i) and (ii)
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