Assume there is a proposal to give the poor people with housing subsidies that are tied to their income levels. These subsidies will be in the form of vouchers the poor can turn over to their landlords in full or partial payment of their housing expenses. The yearly subsidy will equal $2,400 as long as earnings do not exceed the $8,000 per year. The subsidy is to be condensed the 60 cents for every dollar earned in excess of $8,000; that is, when the earnings reach $12,000, the person is no longer eligible for rent subsidies.
1. Illustrate an arbitrary budget constraint for a person, assuming that he or she receives no government subsidies. Then describe in the budget constraint that arises from the above housing subsidy proposal.
2. After drawing in the budget constraint associated with the proposal, examine the effects of this proposed housing subsidy program on the labor supply behavior of various groups in the population.