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If the government gave you a subsidy of $100 per month that you had to spend...

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.

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Answer #1

ANSWER:

The correct answer is option a that is housing were an inferior good for you as since the income would rise and therefore the effect of subsidy would differ from unrestricted income only in the case when spending on housing is an inferior good as oppose to unrestricted income where spending on housing won't be a priority.

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