Assume consumers are choosing between housing services (H) measured in square feet and consumption of all other goods (C) measured in dollars.

a. Show the equilibrium position in a diagram.

b. Now suppose the government agrees to subsidize consumers by paying 50 percent of their housing cost. How will their budget line change? Show the new equilibrium.

c. Show in a diagram the minimum amount of income supplement the government would have to give individuals instead of a housing subsidy to make them as well off as they were in part b.

d. Describe why the amount shown in part c is smaller than the amount paid in subsidy in part b.