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 Spam (an inferior good).What happens to the amount of Spam poor families buy?

Question

Quizplus · Accepted Answer

The subsidy on milk makes milk relatively cheaper than Spam. As a result, poor families will substitute milk for Spam, leading to a decrease in the amount of Spam purchased.

Suppose the Government Decides to Help Poor Families with Kids