This question is intended to have a written response given. The writtenresponse should be 2-3 paragraphs maximum and focused on answer the specific questions of interest using the tools/concepts from lecture/tutorials. You may include agraph to support your argument/ideas, but this is not required (note: I would recommend you sketch a graph when thinking about how to answer this question, thoughthat does not need to be submitted). Leung and Seo wrote an article “How do government transfer payments affect retail prices and welfare? Evidence from SNAP” (Jan,2023) in the Journal of Public Economics. To answer this question, you do not need togo read the paper. I would in fact recommend against it as the paper is very technicaland assumes a knowledge of statistics that most students taking Econ 201 will nothave (some of the ideas will be discussed in Econ 233 and Econ 333). We will use theinformation/main ideas as a starting framework.In the United States, one of the largest welfare programs is the Supplemental NutritionAssistance Program (SNAP)1representing the second largest in-kind transfer programfor individuals in the US. From the abstract of the study we are told “[a] 1% increasein benefits per population raises grocery prices by a persistent 0.08%. A calibratedpartial-equilibrium model implies a marginal benefit dollar raises a recipient’s consumersurplus from groceries by $0.7, producer surplus by $0.5, and lowers each non-SNAPconsumer’s surplus by $0.05.” In other words, increasing the size of the in-kind transferleads to higher prices. This higher price results in a larger surplus for grocery stores anda lower consumer surplus for individuals not participating in SNAP. Those individualswho participate in SNAP can increase their overall consumer surplus as they haveaccess to more goods, despite the higher price. This result is estimated using thenearly 100% redemption of the SNAP benefits (i.e. assuming the benefit goes directlyto those in the SNAP program).The welfare programs the Canadian government runs tend to provide a cash transferas opposed to an in-kind transfer system2. Any direct cash transfer program would notlimit the types of goods that can be purchased/accessed whereas the SNAP programcan only be used to access certain types of food approved by the government. Notdiscussed in the article is the challenge of a gray market where individuals will tradethe in-kind goods provided by SNAP for money implying the SNAP participants arenot actually receiving all of the in-kind goods. • Question: If the US moved from using SNAP to giving the same $ value benefitsto those with lower income (i.e. adopted a program more like the Canadian programs) explain what you would expect would happen in the market for groceriesand the welfare measures (i.e. consumer and producer surplus). *Important to also take note* It is likely helpful to consider if the $0.70 increase per dollar is a correctestimate given the existence of a gray market (a sketch of this market may behelpful, consider what the maximum price people would pay for these illegalin-kind goods when sketching the demand curve).Your answer should focus on both individuals and the market (hint: think2 types of budget constraints versus supply and demand). The impact onwelfare from the consumer perspective goes beyond the market for groceriesand your answer should include that information.Your answer must incorporate the information given (e.g. give a comparisonrelative to the estimated benefits of the SNAP program such as: “do youexpect PS to increase or decrease” and explain why).
This question is intended to have a written response given. The written
response should be 2-3 paragraphs maximum and focused on answer the specific questions of interest using the tools/concepts from lecture/tutorials. You may include a
graph to support your argument/ideas, but this is not required (note: I would recommend you sketch a graph when thinking about how to answer this question, though
that does not need to be submitted). Leung and Seo wrote an article “How do government transfer payments affect retail prices and welfare? Evidence from SNAP” (Jan,
2023) in the Journal of Public Economics. To answer this question, you do not need to
go read the paper. I would in fact recommend against it as the paper is very technical
and assumes a knowledge of statistics that most students taking Econ 201 will not
have (some of the ideas will be discussed in Econ 233 and Econ 333). We will use the
information/main ideas as a starting framework.
In the United States, one of the largest welfare programs is the Supplemental Nutrition
Assistance Program (SNAP)1
representing the second largest in-kind transfer program
for individuals in the US. From the abstract of the study we are told “[a] 1% increase
in benefits per population raises grocery prices by a persistent 0.08%. A calibrated
partial-equilibrium model implies a marginal benefit dollar raises a recipient’s
surplus
consumer’s surplus by $0.05.” In other words, increasing the size of the in-kind transfer
leads to higher prices. This higher price results in a larger surplus for grocery stores and
a lower consumer surplus for individuals not participating in SNAP. Those individuals
who participate in SNAP can increase their overall consumer surplus as they have
access to more goods, despite the higher price. This result is estimated using the
nearly 100% redemption of the SNAP benefits (i.e. assuming the benefit goes directly
to those in the SNAP program).
The welfare programs the Canadian government runs tend to provide a cash transfer
as opposed to an in-kind transfer system2
. Any direct cash transfer program would not
limit the types of goods that can be purchased/accessed whereas the SNAP program
can only be used to access certain types of food approved by the government. Not
discussed in the article is the challenge of a gray market where individuals will trade
the in-kind goods provided by SNAP for money implying the SNAP participants are
not actually receiving all of the in-kind goods.
• Question: If the US moved from using SNAP to giving the same $ value benefits
to those with lower income (i.e. adopted a program more like the Canadian programs) explain what you would expect would happen in the market for groceries
and the welfare measures (i.e.
*Important to also take note*
It is likely helpful to consider if the $0.70 increase per dollar is a correct
estimate given the existence of a gray market (a sketch of this market may be
helpful, consider what the maximum price people would pay for these illegal
in-kind goods when sketching the demand curve).
Your answer should focus on both individuals and the market (hint: think
2 types of budget constraints versus
welfare from the consumer perspective goes beyond the market for groceries
and your answer should include that information.
Your answer must incorporate the information given (e.g. give a comparison
relative to the estimated benefits of the SNAP program such as: “do you
expect PS to increase or decrease” and explain why).
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