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Chapter 15: Q.30 (page 378)
What goods and services would you include in an
estimate of the basic necessities for a family of four?
Food, water, shelter, cloths and transportation
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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.
Explain how you would create a government
program that would give an incentive for labor to
increase hours and keep labor from falling into the
poverty trap.
This problem uses the analogy of a “leaky bucket” 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?
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’s labor-leisure opportunity sets, both for before
this welfare program is enacted and after it is enacted.
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?
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