Assume an indifference map with other goods on the vertical axis and health on the horizontal axis.The government provides families with $400 vouchers that can be redeemed for healthcare services at any hospital,public or private.The budget line for a family that avails this voucher scheme will:
A)be negatively sloped.
B)be positively sloped up to $400 and then have a zero slope.
C)have a zero slope up to $400 and then have a negative slope.
D)be a straight line with an infinite slope.

Question

Quizplus · Accepted Answer

The $400 voucher provides a fixed subsidy for healthcare services. Assuming that the cost of healthcare services increase as more of them are consumed, the budget line will have a zero slope up to the point where the $400 voucher is exhausted. Beyond that point, the budget line will have a negative slope as the family has to finance the additional healthcare services out of their own pocket. Therefore, the budget line will have a zero slope up to $400 and then have a negative slope. This is illustrated in the following graph:

```
      | 
      |
      |
      |
      |  C 
      |
      |
      |
      |-------------------------
            $0         $400       Other goods 
```

The optimal choice for the family will depend on their preferences and the prices of healthcare services and other goods. They will choose the point on the budget line that gives them the highest level of utility, subject to their budget constraint.

Assume an Indifference Map with Other Goods on the Vertical