Question

3.) Use a graph to show that an income grant to a person is more useful to them than a subsidy on a particular good that costs the same to the government

Answer 1

Subsidies - they are the basic source via which the government tend to help the needy people , through this some amount of the good is paid by the consumer and rest is given by government

Cash grant - unlike subsides these are just direct money given to the consumer ,not by reducing the price availed by the consumer

Both has same objective i.e. CONSUMER WELFARE , however the latter is considered better as-

Explaination -

assume initially government is helping by assisting in food products

Giving subsidy - Here the OP is money line ,PL1 is budget line ,now let say government is giving subsidy to consumer by giving food at lower cost that will cause other budget line of PL2 i.e. OL1 = OL2 , with PL2 , equibirium will be at R making consumer to get OA quantity on IC1 .With subsidy consumer pays TN amount without he will pay PN , as after subsidy from PN ,TN is paid by government

Income grant - here now to find money value of subsidy we draw CD , parallel to PL1 ,which can also touch IC1 at same equibirium level giving same welfare to consumer , i.e. by giving PC amount of money consumer can get same welfare that is also the value of subsidy . Therefore, CP = RM , moreover if taking CD as the other budget line then the welfare is also higher on higher IC2.

Conclusion :

As by income grant the consumer can also substitute the products as per there own choice making it a better option than subsidy . Making consumer a better off as food consumption is less than the price subsidy given on it.

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