Question

The TANF program was created in 1996 by a major overhaul of the cash welfare system in the United States. The cash welfare system distributes money from taxpayers to low-income families. TANF provides a monthly support check to families with incomes below a threshold level that is set by each state (read section 2.2.). Suppose that a single mother called Lisa, with two children and no other source of income, receive a monthly check for $425 from TANF. Assume further that Lisa can work at most 160 hours a month and that she will earn $10 an hour in a benefit reduction rate of 50% (a benefit reduction rate of 50% implies that TANF recipients get the full benefit guarantee if they have no other income, but that they lose $0.50 of the benefit guarantee for each $1 they earn).

Therefore, Lisa budget constraint is given as follow: Consumption = 425 + 5 x (160 - L), if hours of leisure (L) > 75 Consumption = 10 x (160 - L), if hours of leisure (L) < 75 a) Draw Lisa budget line (consumption (C) should be in the vertical axis and Leisure (L) in the horizontal axis)

b) If Lisa utility function is given by U = 150 x ln(C) + 200 x ln(L), then how much will she supply of labor and consume monthly?

c) How much will Lisa supply of labor and consume monthly if there is no reduction rate (i.e. a benefit reduction rate of 0%)? d) If the gov’t wants Lisa to supply more labor, which policy is better, benefit reduction rate of 50%, 0% or no TANF program? d)What if the gov’t only cares about Lisa’s level of utility?

e) Suppose that all individuals in this economy have the same utility as Lisa. Suppose further that 90% of the individuals have a monthly income of $5000 and consume 90 hours of leisure, while the remaining 10% of the individuals receive a TANF benefit without reduction (i.e. same L and C you found in letter c). If TANF is eliminated, then 90% of the individuals will get an extra $100 (i.e. C=$5100) and an extra hour of leisure (i.e. L=91) per month, while the remaining 10% will get C=685.65 and L=91.42 (as letter b). Make a utilitarian analysis of this economy discussing what happens to the average level of utility in this society if TANF is eliminated.

Answer 1

"No, the existence of poverty will not imply the social and economical system unjust." The poverty has been prevailing since the beginning of time. There has always been a lesser opportunity group of citizens among the society. At least as long as the society base their social and economic systems off any type of bartering or monetary system, and as long as there are people among the society, feel that they are better than other members of community based on their monetary position. The society should be not blamed for the unjust, because, it is human nature. There are people who are willing to take benefits from the shorter income of others to further their self cause. There are also few people who ignore injustices under the pretence, in such a way their actions doesn't directly affect anyone. "It is individual's action that leads to the concentration of the poverty." The society should not be blamed for the concentration of the poverty in a particular group, it is considered as the individual's fault. The society has major role to play in these circumstances, still boils down an individual's decisions As for the concentration of poverty in certain groups, again I don't see this as a fault of society as whole, but again as a fault of the individual. While society may have a larger role in these types of situations the overall issue, still boils down the individual decisions. No society forces some people to be poor. It is individual's performance and actions that dictate the status they wanted to be in.