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Chapter 15: Q 3. (page 376)

Imagine that the government reworks the welfare policy that was affecting Jonathan in question 1, so that for each dollar someone like Jonathan earns at work, his government benefits diminish by only 30 cents. Reconstruct the table

from question 1 to account for this change in policy. Draw Jonathan鈥檚 labor-leisure opportunity sets, both for before

this welfare program is enacted and after it is enacted.

Short Answer

Expert verified
Amount of hours workedEarnings from Work ($6 x Amount of hours worked)Government SupportTotal Income (Earnings from work + Government support)
00$10,000$10,000
500$3,000$9,100$12,100
1000$6,0008,200$14,200
1500$9,000$7,300$16,300

Step by step solution

01

Step 1. Given information

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 government benefits diminish by only 30 cents.

02

Step 2. Solution

Amount of hours workedEarnings from Work ($6 x Amount of hours worked)Government Support (reduces by 30 cents)Total Income (Earnings from work + Government support)
00$10,000$10,000
500$3,000$9,100$12,100
1000$6,0008,200$14,200
1500$9,000$7,300$16,300
03

Step 3. Labor-leisure diagram ofJonathan’s opportunity set with and without government support

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Most popular questions from this chapter

Identify some public policies that can reduce the

level of economic inequality.

Many critics of government programs to help low-

income individuals argue that these programs create a poverty trap. Explain how programs such as TANF, EITC, SNAP, and Medicaid will affect low-income and whether or not you think these programs will benefit families and children.

Consider two of the income security programs in the United States: Temporary Assistance for Needy Families (TANF) and the Earned Income Tax Credit (EITC).

a. When a woman with Children and very low income earns an extra dollar, she receives less in TANF benefits. What do you think is the effect of this feature of TANF on the labor-supply of low-income women? Explain.

b. The EITC proves greater benefits as low-income workers earn more income (up to a point). What do you think is the effect of this program on the labor-supply of low-income individuals? Explain.

c. What are the disadvantages of eliminating TANF and allocating the savings to EITC?

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: \(24,000, \)18,000, \(50,000, \)100,000, \(12,000,

\)36,000, \(80,000, \)10,000, \(24,000, \)16,000. Calculate the share of total income that each quintile receives from this

income distribution. 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?
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