Suppose the City of Raleigh is considering policies to make housing more affordable, and that current residential rents, on average, are about $5 per square foot (ft2). Thus, we can think of households as trading off consumption of housing at a price of $5/ ft2, and consumption of "all other goods" at a price of $1/unit. For simplicity, planners are considering the effects of each policy option on a family with an income of $2000 a month.

a. Draw budget lines associated with each of these options:

A $500, non-tradable housing voucher.

A monthly housing matching grant of $2.50/ ft2, up to $500 per family.

b. Which of the two options described in part (a) will low-income families prefer? Explain with reference to the budget lines you drawn for part (a).