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Chapter 15: Q. 15 (page 377)
What is the poverty line?
The poverty line marks the level of income required for attending the subsistence level of living. People earning income less than that or lying below the poverty line, are considered to be in a state of poverty.
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Here is one hypothesis: A well-funded social safety net can increase economic equality but will reduce economic
output. Explain why this might be so, and sketch a production possibility curve that shows this tradeoff.
We have discovered that the welfare system discourages recipients from working because the more income they earn, the less welfare benefits they receive. How does the earned income tax credit attempt to loosen the poverty trap?
Jonathon is a single father with one child. He can work as a server for \(6 per hour for up to 1,500 hours per year. He is eligible for welfare, and so if he does not earn any income, he will receive a total of \)10,000 per year. He can work and still receive government benefits, but for every \(1 of income, his welfare stipend is \)1 less. Create a table similar to Table 15.4 that shows Jonathan鈥檚 options. Use four columns, the first showing number of hours to work, the second showing his earnings from work, the third showing the government benefits he will receive, and the fourth column showing his total income (earnings + government support). Sketch a labor-leisure diagram of Jonathan鈥檚 opportunity set with and without government support.
Think about the business cycle: during a recession,
unemployment increases; it decreases in an
expansionary phase. Explain what happens to TANF, SNAP, and Medicaid programs at each phase of the business cycle (recession, trough, expansion, and peak).
Using two demand and supply diagrams, one for the low-wage labor market and one for the high-wage labor market, explain how information technology can increase income inequality if it is a complement to high-income workers like salespeople and managers, but a substitute for low-income workers like file clerks and telephone receptionists.
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