Step 1: Marginal rate of substitution = y / 2x

Step 2: Family's demand function for acceptable housing is x = I / 3 * Px

Family's demand function for composite good is y =2 * I / 3 * Py

Step 3: Lowest level of income at which Government's target is met is $630.

Utility = 176,400 utils

Step 4: Highest housing price at which Government's target is met is $200.

Utility = 160,000 utils

Step 5:

Utility = 67,600 utils

Please answer the following using the steps and scenario

1. Determine the cost (per low income family) of the two government proposals, and to assess the impact of each of the three proposals (including the proposal from the Institute for Cold-Hearted Economics) on family welfare.
2. Consider whether these policies may have unintended consequences for the rental market
3. Specifically, what impact might the schemes have on the equilibrium rents of acceptable and substandard homes?
4. What incentive do these price changes create for the landlords of substandard housing?

2 Scenario The government of the island nation of Autarka has become concerned by recent reports that many low income families are residing in substandard housing. (Housing that is too small for the family. or that has significant defects.) The government has committed to implementing new policies to ensure that all families receiving welfare payments can afford housing that meets a "minimum acceptable standard". Two alternative schemes are under consideration: 1. Increase the weekly welfare payment made to low income families, to a level at which the families can afford to rent acceptable housing. 2. Subsidise the rents of families on welfare to bring the price of acceptable housing down to an affordable level. The Institute for Cold-Hearted Economics has criticised both proposals for being too ex- pensive. They advocate converting $210 of the existing weekly welfare payment to a rental voucher. thereby forcing low income families to prioritise housing over other consumption. They claim that using a voucher in this way. would meet the government's goals without incurring additional expenditure