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Chapter 15: Q.27 (page 378)
What are the main reasons economists give for the
increase in inequality of incomes?
-Change in the household structure
-The shift in an allotment of pay
-Education
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Describe how each of these changes is likely to affect poverty and inequality:
a. Incomes rise for low-income and high-income workers, but rise more for the high-income earners.
b. Incomes fall for low-income and high-income workers, but fall more for high-income earners.
How does the TANF attempt to loosen the poverty trap?
Briefly explain the differences between TANF, the earned income tax credit, SNAP, and Medicaid.
This problem uses the analogy of a 鈥渓eaky bucket鈥� to explain one constraint on the redistribution of income.
a. What elements of the U.S. system for redistributing income create the leaks in the bucket? Be specific.
b. Between Republicans and Democrats, who do you think generally believes that the bucket used for redistributing income is leaky? How does that belief affect their views about the amount of income redistribution that the government should undertake?
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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