The ultimate comparison between the cash transfer and in-kind transfer depends
on Paul’s preferences. In panel (a), Paul would choose to spend at least
$1,000 on food even if he receives a cash transfer. Therefore, the constraint imposed
by the in-kind transfer is not binding. In this case, his consumption moves
from point Ato point B regardless of the type of transfer. That is, Paul’s choice between
food and nonfood consumption is the same under the two policies.