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what would the graph look like for this question? 3. Assess the following statement (draw the budget set and indifference curves for people who start
what would the graph look like for this question?
3. Assess the following statement (draw the budget set and indifference curves for people who start out not working at all, people who work and get benefits, and people who are near the break-even point). If I reduce the benefit reduction rate for cash welfare from 50% to 25%, and leave the guarantee un- changed, it will save me money because some people on the program will work more so I will pay less. See graph. But a reduction in the BRR will indeed cause some people to work more, either entering the labor force or increasing their hours of work among those who were on the program before. But it will also make a substantial number of people who weren't on the program before to get onto the program, both because leisure is cheaper (net of tax wage is lower) and because of the income effect (by cutting hours, they can get the windfall benefit). And some people with hours above the new break-even will also cut their hours. All of those people will require some welfare benefits. So, on net it is ambiguous what if any cost savings there would be, and there could easily not be anyStep by Step Solution
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