Cash Vs. Voucher Suppose you are managing a clothing factory.

The average income of the factory workers is Rs 50 per day. On average, a factory worker consumes 4 units of food daily at the factory canteen at the price of Rs 5 per unit and consumes 3 units of “all other goods” at the average price of Rs10 per unit. You have started providing a daily coupon of Rs 30 which can be used to purchase food at the factory canteen. It cannot be sold for cash or used to purchase non-food items outside. As per this policy, on average, the food consumption has increased from 4 units to 6 units at the canteen per day. Answer the following questions using indifference curve techniques. (1) What is the effect of your coupon programme on workers’ economic welfare? (2) Although the workers are happy with your policy, most of the workers prefer equivalent amount of cash to voucher (i.e., Rs 30). (3) Why do workers prefer cash to voucher? (4) After getting cash instead of voucher, Ramesh, a worker consumes 5 units of food a day, whereas Harihar, another worker consumes 3 units of food a day at the canteen. How can you explain the contradictory result that both workers consume a different quantity of food a day at the canteen?

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