Chapter 15: Q.31 (page 378)
If a family of three earned $20,000, would they
be able to make ends meet given the official poverty threshold?
Family of three would hardly be able to survive on an earning of $20,000.
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Who are the near-poor?
The poverty rate would be substantially lower if the market value of in-kind transfers were added to family income. The largest in-kind transfer is Medicaid, the government health program for the poor. Lets say the program costs \(10,000 per recipient family.
a. If the government gave each recipient family a \)10,000 check instead of enrolling them in the Medicaid program, do you think that most of these families would spend that money to purchase health insurance? Why? (Recall that the poverty level for a family of four is about $25,000.)
b. How does your answer to part (a) affect your view about whether we should determine the poverty rate by valuing in-kind transfers at the price the government pays for them? Explain.
c. How does your answer to part (a) affect your view about whether we should provide assistance to the poor in the form of cash transfers or in-kind transfers? Explain.
Jonathon is a single father with one child. He can work as a server for \(6 per hour for up to 1,500 hours per
year. He is eligible for welfare, and so if he does not earn any income, he will receive a total of \)10,000 per year.
He can work and still receive government benefits, but for every \(1 of income, his welfare stipend is \)1 less. Create
a table similar to Table 15.4 that shows Jonathan’s options. Use four columns, the first showing number of hours
to work, the second showing his earnings from work, the third showing the government benefits he will receive,
and the fourth column showing his total income (earnings + government support). Sketch a labor-leisure diagram of
Jonathan’s opportunity set with and without government support.
Explain how you would create a government
program that would give an incentive for labor to
increase hours and keep labor from falling into the
poverty trap.
Identify some public policies that can reduce the
level of economic inequality.
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