The government of Mexico City recently began distributing the drug Viagra at a h

Question

The government of Mexico City recently began distributing the drug Viagra at a highly subsidized price to low-income elederly men. Suppose that the government gives each repipient six pills per month at a price of $1 per pill, and the market price is $10 per pill. Can we conclude that an individual participating in the program would be worse off if provided with a cash grant of $50 instead of the viagra? (Hint: Analyze a model in which the individual chooses between two commodities, "Viagra pills" and "all other goods.")

Explanation / Answer

we can conclude that an individual participating in the program would be better off if provided with a cash grant of $50 instead of the viagra

"Bounty, contribution, gift, or subsidy (in cash or kind) bestowed by a government or other organization (called the grantor) for specified purposes to an eligible recipient (called the grantee). Grants are usually conditional upon certain qualifications as to the use, maintenance of specified standards, or a proportional contribution by the grantee or other grantor(s)."

Normally with a subsidy, it is in addtion to what you already are paying or receiving for something. The Section 8 program is a subsidy type program. The welfare programs and unemployment programs that are run by states are also subisdy type programs or benefit programs. This was the definition for subsidy:

"Economic benefit (such as a tax allowance or duty rebate) or financial aid (such as a cash grant or soft loan) provided by a government to (1) support a desirable activity (such as exports), (2) keep prices of staples low, (3) maintain the income of the producers of critical or strategic products, (4) maintain employment levels, or (5) induce investment to reduce unemployment. The basic characteristic of all subsidies is to reduce the market price of an item below its cost of production. Also called subvention."

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