EBK PRINCIPLES OF ECONOMICS
8th Edition
ISBN: 8220103600453
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 20, Problem 8PA
Subpart (a):
To determine
The difference between the TANF policy and EITC policy.
Subpart (b):
To determine
The difference between the TANF policy and EITC policy.
Subpart (c):
To determine
The difference between the TANF policy and EITC policy.
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In California, a welfare recipient is eligible for welfare benefits of $645. Benefits are reduced by 50
cents for every dollar of earnings. Consider Elizabeth, a resident of California, who can earn $10 per
hour.
a. If she works 10 hours, how much are her earnings, how much is her welfare benefit, and how
much is her income?
b. After Elizabeth works a certain number of hours, she does not receive any benefit at all. What is
that number of hours?
c. Use your answer to parts a and b to plot her budget constraint.
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Why does the earned income tax credit increase the labor force participation rate of targeted groups?
In California, a welfare recipient can earn $225
per month without having her benefits reduced.
Beyond $225, benefits are reduced by 50 cents
for every dollar of earnings. Consider Elizabeth,
a resident of California, who can earn $10 per
hour. If she does not work at all, she is eligible
for welfare benefits of $645.
a. If she works 10 hours, how much are her
earnings, how much is her welfare benefit,
and how much is her income?
b. After Elizabeth works a certain number of
hours, she does not receive any benefit at
all. What is that number of hours?
c. Use your answer to parts a and b to plot her
budget constraint.
d. Sketch a set of indifference curves consis-
tent with Elizabeth's participating in the
labor market.
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