Contrasting price and income subsidies

    Consider the Smiths, a low-income family which has a $400 income to spend on food (F) [market price = Pmkt = $10 per meal], with the rest spent on other goods (Io).

    Option 1: the government offers a 50% food price subsidy, so the Smiths pay a subsidized price = Psub = $5 per meal
    Option 2: the government offers the Smiths a utility-equivalent income subsidy.