Question

Suppose a single parent can work up to 16 hours per day at a wage rate of $ 10 per hour. Various income maintenance programs have been developed to assure a minimum level of income for low-income families, such as AFDC (see Problem 2). One of the problems with AFDC is that benefits were reduced by $ 1 for every dollar earned. An alternative income maintenance program is Temporary Assistance for Needy Families (TANF), which also offers a no-work benefit but has a smaller reduction in wages for every dollar earned. A simplified version of this type of program is one that would give this single parent a $ 40 (no-work) grant accompanied by a benefit reduction of 75 cents for every dollar earned.

A. Draw the daily budget constraint without any program participation for the single parent described in this problem.

B. On the same graph, draw the daily budget constraint under TANF for the single parent described in this problem. At what level of income does the subsidy end? How many hours of work would this be? Discuss the effect of program participation on work incentives.

C. On the same graph, draw the daily budget constraint under AFDC for the single parent described in Problem 2.

D. Compare the effect of the TANF program on work incentives compared to the AFDC program.

Answer 1

(o) A singh paent has a htal ot is hous in ao day to duida behe leisure and labon. The hagehale isダ10 pen hous. Naximum omount that the single parent can eaan ㄷ tox16-Xte 个 160 leisu (in houn) DaiケBadger gonhoint without progam parhupahon . Thu veshcal intoripht o the daily budget constrant is f160ie hu maximum amount the singh paunt con (b) Undv subsidy pregzam , eash singlu paxent is alloned a daily Subsidy 叶$40 . This mans even it the single parant spends his/her entin hime in leigun., he/she will ham an incomu 아メ40 Undu. the Program , the daily subsidy-uduus byメ1 eaand. This toua houng honking, the income wil remainメ40, becaunethu subsi buill yudua equivalant to tha amount eaanad eveng daily or len than mans even i thu single parant spe ndi equal to Srna, there」s no subside. When the singl. pannt spends mahathan on equal to 4 hous wonking, we know that the masimum amount the kingl parent can eaan is still 160 160 Incoma (in dolbn) 16 cmstraint hith Cune(164)Gisur Cin hourn)