In class, we showed that while SNAP will likely increase food consumption, $1.00 of SNAP leads to less than $1.00 of increased food consumption. Senator Smith does not like SNAP because of this, and he is proposing his own program for food assistance. His idea is to give consumers the same amount of extra purchasing power by reducing the price that they have to pay for food rather than by giving out money that can only be spent on food.
a. Suppose that the average SNAP recipient's weekly income is $100, the price of food is $5.00, and that the amount of money they receive from SNAP (which can only be spent on food) is $50. Draw this budget line and and indifference curve which shows that the consumer's best choice is to purchase $50 of all other goods and 20 units of food. (Hint: This is the same budget line that was used in class)
b. Now, on the same graph, draw a budget line that represents Senator Smith's program. Weekly income is unchanged. However, the price of food is now $3.33, and the consumer receives $0.00 from SNAP.
c. Would you recommend that the government end SNAP and adopt Senator Smith's program instead? Why or why not?