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Chapter 15: Q. 19 (page 377)
Who are the near-poor?
Near poor individuals live off an income marginally above the poverty line.
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What are the main reasons economists give for the increase in inequality of incomes?
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.
A group of 10 people have the following annual incomes: \(55,000, \)30,000, \(15,000, \)20,000, \(35,000, \)80,000, \(40,000, \)45,000, \(30,000, \)50,000. Calculate the share of total income each quintile of this income distribution received. Do the top and bottom quintiles in this distribution have a greater or larger share of total income than the top and bottom quintiles of the U.S. income distribution for 2005?
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?
Exercise 15.2 and Exercise 15.3 asked you to
describe the labor-leisure tradeoff for Jonathon. Since, in the first example, there is no monetary incentive for
Jonathon to work, explain why he may choose to work
anyway. Explain what the opportunity costs of working
and not working might be for Jonathon in each example.
Using your tables and graphs from Exercise 15.2 and Exercise 15.3, analyze how the government welfare system affects Jonathan鈥檚 incentive to work.
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