Suppose the government decides to help poor families with kids by subsidizing the purchase of milk.The subsidy takes the form of a 50% discount in the price of milk.Suppose also that poor families buy only milk and soda, which are substitutes, although not perfect substitutes.What happens to the amount of milk poor families buy?

Question

Quizplus · Accepted Answer

With the subsidy, the price of milk decreases, making it relatively cheaper for poor families to purchase. As milk and soda are substitutes, poor families are likely to shift their consumption from soda to milk, leading to an increase in the amount of milk purchased.

Suppose the Government Decides to Help Poor Families with Kids