Amy is currently spending her income to maximize her satisfaction. She is renting an apartment for $900 per month as shown in the diagram below (Assume each dollar spent on housing buys 1 unit of housing. H1 represents her $900 per month apartment).
a. Suppose that Amy qualifies for a government housing assistance program that will provide her with a $600 per month apartment at no charge. If she accepts the apartment, she cannot augment her expenditure on housing (for example, she cannot add $300 of her income to the $600 per month provided by the government program, and rent the $900 per month apartment), nor can she exchange the apartment for cash or other goods. How does the government program alter Amy's budget line?
b. Suppose that Amy is given $600 in cash instead of the $600 per month apartment. How will this alter Amy's budget line?
c. Is Amy indifferent between the housing assistance program and cash program, or does she prefer one program over the other? Draw an indifference curve to illustrate your answer.

Question

Amy is currently spending her income to maximize her satisfaction. She is renting an apartment for $900 per month as shown in the diagram below (Assume each dollar spent on housing buys 1 unit of housing. H1 represents her $900 per month apartment).  
a. Suppose that Amy qualifies for a government housing assistance program that will provide her with a $600 per month apartment at no charge. If she accepts the apartment, she cannot augment her expenditure on housing (for example, she cannot add $300 of her income to the $600 per month provided by the government program, and rent the $900 per month apartment), nor can she exchange the apartment for cash or other goods. How does the government program alter Amy's budget line?
b. Suppose that Amy is given $600 in cash instead of the $600 per month apartment. How will this alter Amy's budget line?
c. Is Amy indifferent between the housing assistance program and cash program, or does she prefer one program over the other? Draw an indifference curve to illustrate your answer.

Quizplus · Accepted Answer

The Answer of Amy is currently spending her income to maximize her satisfaction. She is renting an apartment for $900 per month as shown in the diagram below (Assume each dollar spent on housing buys 1 unit of housing. H1 represents her $900 per month apartment).  
a. Suppose that Amy qualifies for a government housing assistance program that will provide her with a $600 per month apartment at no charge. If she accepts the apartment, she cannot augment her expenditure on housing (for example, she cannot add $300 of her income to the $600 per month provided by the government program, and rent the $900 per month apartment), nor can she exchange the apartment for cash or other goods. How does the government program alter Amy's budget line?
b. Suppose that Amy is given $600 in cash instead of the $600 per month apartment. How will this alter Amy's budget line?
c. Is Amy indifferent between the housing assistance program and cash program, or does she prefer one program over the other? Draw an indifference curve to illustrate your answer.

Amy Is Currently Spending Her Income to Maximize Her Satisfaction