ECONOMICS W/CONNECT+20 >C<
20th Edition
ISBN: 9781259714993
Author: McConnell
Publisher: MCG CUSTOM
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Question
Chapter 23, Problem 8DQ
To determine
The trade-off between equality and efficiency.
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Shen, who is currently unemployed, is a participant in four welfare programs that offer daily benefits of $10 each to people with no
earned income. Each program then curtails its benefits by 50 cents for every dollar of income a recipient earns. Shen's identical twin
brother, Sean, is enrolled in an experimental negative income tax program that gives him $40/day in benefits and then taxes him at the
rate of 50 percent on each dollar of earned income. Now suppose Shen is offered a job that pays $4/hr, the same wage his brother
earns.
a. Draw the budget constraint for each twin.
Instructions: To earn full credit for this graph you must plot all required points for each curve.
1. Use the line tool (Shen's budget constraint, plot 3 points) to draw the Shen's budget constraint.
2. Use the line tool (Sean's budget constraint, plot 2 points) to draw the Sean's budget constraint.
After tax-income ($/day)
98
84
70
56
42
28
14
0
2 4 6 8 10 12 14 16 18 20 22 24 26
Leisure (hrs/day)
Tools
Shen's…
Extreme efficiency comes at a cost of terrible inequality, while perfect equality comes at a cost of terrible inefficiency. However,
there are cases where there is no efficiency cost to increased equality.
Identify each scenario that is likely to increase equality with little or no efficiency cost.
Using money and influence, rich donors successfully lobby for tax cuts for the highest 1% of earners.
An extension of unemployment benefits leads to prospective workers taking more time off between jobs.
After-school programs in Chicago reduce crime rates among teenagers.
Atlanta's investment in public transportation leads to higher worker productivity, as fewer employees miss days or show
up late for work.
Programs offering free or low-cost childcare in Los Angeles lead to increased labor force participation among women,
particularly lower-income women.
Assume a society consists of two economic groups: one group is rich and the other group is poor. Suppose that
50
percent of the population is rich while the other
50
percent of the population is poor. Consider two scenarios.
Scenario A: The rich have
$80,000
each, while the poor have
$5,000
each.
Scenario B: The rich have
$11,000
each, while the poor have
$900
each.
If you only care about average income and not about equity, you would prefer
▼
Scenario A
Scenario B
,
which has an average income of
$........??
(Enter
your response to the nearest
dollar.)
Now suppose that you only care about equity or inequality.
In this case, you would prefer
▼
Scenario B
Scenario A
,
which has a rich-to-poor ratio of
.........??
(Round
your response to one decimal
place.)
Finally, suppose you only care about living standards.
In this case, you would prefer
▼
Scenario A
Scenario B
because it has lower poverty.
Chapter 23 Solutions
ECONOMICS W/CONNECT+20 >C<
Knowledge Booster
Similar questions
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