Q. (a) A country recently passed food stamp legislation. Qualified households are given food stamps, which can be used to purchase foods, but they cannot legally re-sell the food stamps. Assume a household receives a grant of $500 of food stamps every month. How will this household's budget line be affected? (Hint: Consider two goods: food also other goods.)
(b) Show that if the food stamps could be legally re-sold, the welfare of the household would be increased. Give one reason why food stamps should not be re-sold.