If the government gave you a subsidy of $100 per month that you had to spend on housing and if you could spend the remainder of your income in any way you wished, the effect of the subsidy would differ from the effect of a $100 per month unrestricted increase in your income only if
A)housing were an inferior good for you.
B)housing were a normal good for you.
C)you would spend less than $100 per month on housing when you received the unrestricted $100 monthly increase in your income.
D)you would spend more than $100 per month on housing when you received the unrestricted $100 monthly increase in your income.
E)your preferences were homothetic.

Question

Quizplus · Accepted Answer

The effect of the subsidy differs from an unrestricted income increase only if you would allocate the unrestricted funds differently, i.e., spend less than $100 on housing, showing a preference for other goods or savings over additional housing expenditure.

If the Government Gave You a Subsidy of $100 Per