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Chapter 15: Q 20. (page 377)
What is the safety net?
Safety-net refers to the welfare and anti-poverty programs implemented by the US government for the poor and the near-poor of the country.
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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?
If a country had perfect income equality what
would the Lorenz curve look like?
What goods and services would you include in an
estimate of the basic necessities for a family of four?
What are some reasons why a certain degree of
inequality of income would be expected in a market
economy?
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.
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