The net monetary gain in each scenario and the way in which the incentive to work differs from scenario to scenario. Concept introduction: Unemployment Benefits: Unemployment benefits refer to the amount of money that a government provides to the young people who are actively searching for job but are unable to find one. It is a form of allowance to the unemployed youth. Net Monetary Gain: Net monetary gain is defined as the money that is left after the deduction of unemployment benefits and income tax.The formula to calculate net monetary gain is, Net monetary gain = Payment from neighbor − Unemployment benefit − Income tax Explanation: Net monetary gain in scenario 1: Given, Payment from the neighbor is $500. Unemployment benefit is $200. The formula to calculate net monetary gain is, Net Monetary Gain = Payment From Neighbor − Unemployment Benefit Substitute $500 for payment from neighbor and $200 for unemployment benefit. Net Monetary Gain = $ 500 − $ 200 = $ 300 Therefore, the net monetary gain is $300. Net monetary gain in scenario 2: Given, Payment from the neighbor is $500. Unemployment benefit is $100. Income tax is $100 The formula to calculate net monetary gain is, Net Monetary Gain = ( Payment From Neighbor − Unemployment Benefit − Income Tax ) Substitute $500 for payment from neighbor, $100 for unemployment benefit and $100 for income tax. Net Monetary Gain = $ 500 − $ 100 − $ 100 = $ 300 Therefore, the net monetary gain is $300. Net monetary gain in scenario 3: Given, Payment from the neighbor is $500. Unemployment benefit is $0. Income tax is $100 The formula to calculate net monetary gain is, Net Monetary Gain = ( Payment From Neighbor − Unemployment Benefit − Income Tax ) Substitute $500 for payment from neighbor, $0 for unemployment benefit and $100 for income tax. Net Monetary Gain = $ 500 − $ 0 − $ 100 = $ 400 Therefore, the net monetary gain is $400. Scenario 3 has the largest incentive, as the person is working more. In this case, there is no income tax, and the unemployment benefit is also less i.e. $100. Scenario 1 has the least incentive because the unemployment benefit is $200. As the unemployment benefit increases, the incentive to work decreases. Scenario 2 is a situation between scenario 1 and scenario 3. This is because it has both income tax and unemployment benefit i.e. $100.

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Chapter 14, Problem 2DQ

To determine

The net monetary gain in each scenario and the way in which the incentive to work differs from scenario to scenario.

Concept introduction:

Unemployment Benefits:

Unemployment benefits refer to the amount of money that a government provides to the young people who are actively searching for job but are unable to find one. It is a form of allowance to the unemployed youth.

Net Monetary Gain:

Net monetary gain is defined as the money that is left after the deduction of unemployment benefits and income tax.The formula to calculate net monetary gain is,
Net monetary gain=
Payment from neighbor−Unemployment benefit−Income tax

Explanation:

Net monetary gain in scenario 1:

Given,
Payment from the neighbor is $500.
Unemployment benefit is $200.

The formula to calculate net monetary gain is,
Net Monetary Gain=
Payment From Neighbor−Unemployment Benefit
Substitute $500 for payment from neighbor and $200 for unemployment benefit.
Net Monetary Gain=$500−$200 =$300
Therefore, the net monetary gain is $300.

Net monetary gain in scenario 2:

Given,
Payment from the neighbor is $500.
Unemployment benefit is $100.
Income tax is $100

The formula to calculate net monetary gain is,
Net Monetary Gain=
( Payment From Neighbor−Unemployment Benefit −Income Tax )
Substitute $500 for payment from neighbor, $100 for unemployment benefit and $100 for income tax.
Net Monetary Gain=$500−$100−$100 =$300
Therefore, the net monetary gain is $300.

Net monetary gain in scenario 3:

Given,
Payment from the neighbor is $500.
Unemployment benefit is $0.
Income tax is $100

The formula to calculate net monetary gain is,
Net Monetary Gain=
( Payment From Neighbor−Unemployment Benefit −Income Tax )
Substitute $500 for payment from neighbor, $0 for unemployment benefit and $100 for income tax.
Net Monetary Gain=$500−$0−$100 =$400

Therefore, the net monetary gain is $400.

Scenario 3 has the largest incentive, as the person is working more. In this case, there is no income tax, and the unemployment benefit is also less i.e. $100.

Scenario 1 has the least incentive because the unemployment benefit is $200. As the unemployment benefit increases, the incentive to work decreases.

Scenario 2 is a situation between scenario 1 and scenario 3. This is because it has both income tax and unemployment benefit i.e. $100.

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