Question

Assume:

Society has a utilitarian Social Welfare Function (SWF)

Each individual’s utility function is represented by:

U=√C, where C = consumption = income

Ten percent (10%) of citizens are single mothers with initial income of $10,000.

Ninety percent (90%) of citizens have an initial income of $50,000.

Next, suppose a new policy cuts the TANF benefit, which leads to single mothers’ income to drop to $5,000, but the income of everyone else increases to $51,000.

Compute Total Social Efficiency and Total Social Welfare pre- and post-new policy.

Evaluate the societal effects of the new policy.

Answer 1