Quantity tax and Food Stamps (a) Consider a two-good (X and Y) model. How does a quantity tax (i.e. per unit tax) on good X affect the budget line of…

Quantity tax and Food Stamps

(a)  Consider a two-good (X and Y) model. How does a quantity tax (i.e. per unit tax) on good X affect the budget line of a consumer?

(b)  A country recently passed a food stamp legislation. Qualified households are given food stamps, which can be used to purchase foods, but they cannot legally re-sell them. Suppose a household receives a grant of $300 of food stamps per month. How will this household’s budget line be affected? (Hint: Consider two goods: food and other goods.)

 
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