Question

Jones, who is currently unemployed, is a participant in three means-tested welfare programs: food stamps, rent stamps, and day care stamps. Each program grants him $150 per week in stamps, which can be used like cash to purchase the good or service they cover. a. If benefits in each program are reduced by 40 cents for each additional dollar Jones earns in the labor market, how will Jones’s economic position change if he accepts a job paying $120 per week? Jones would be by $ 24 per week. b. Using your findings in part a, the effective marginal tax rate on Jones's earnings from this job would be .

Answer 1

If Jones accepts a job paying $120 per week, his economic position will change by $72 per week. The effective marginal tax rate on Jones's earnings from this job would be 40%.

Step-by-step explanation:

To calculate how Jones's economic position will change if he accepts a job paying $120 per week, we need to determine the change in his benefits from the welfare programs. Each program grants him $150 per week, but benefits are reduced by 40 cents for each additional dollar he earns in the labor market. Therefore, for each dollar he earns, his benefits are reduced by 40 cents. If he accepts the job paying $120 per week, he will earn an additional $120 and his benefits will be reduced by $48 (40% of $120).

Therefore, Jones's economic position will change by $120 - $48 = $72 per week. He will be $72 per week better off than if he were unemployed and solely relying on welfare benefits.

The effective marginal tax rate on Jones's earnings from this job can be calculated by dividing the reduction in benefits ($48) by the increase in earnings ($120). This gives us a marginal tax rate of 40% ($48 / $120 = 0.4). Therefore, the effective marginal tax rate on Jones's earnings from this job would be 40%.

Answer 2

(a) J was at first getting $450 for example $150 from every mean tried program. Presently as he begins winning, he will lose $0.40 from each program for each dollar earned. As his gaining is $120, so the decrease in from one program will be 0.4x 120 = $48 and all out decrease in pay from each of the three projects is 3x 48 = $144 . Consequently, it tends to be seen that he is procuring $120 yet losing $144. Along these lines, he is at loss of $24 on the off chance that he acknowledges the activity.

(b) When individuals are getting pay for not doing anything then the opposition towards working increments. The model above shows that there are situations when member is at genuine fiscal misfortune on the off chance that he joins a vocation which is an extremely solid disincentive for working. In this way, these methods tried projects will in general decrease the motivating force of doing tasks and working.