Question

1. TANF is the current iteration of welfare designed to aid poor families with children.
   1. Graph the TANF budget constraint and graph a possible optimal hours choice for an individual that has a preference for leisure.

2. When in the program, what are the effects on work incentives from income and substitution effects?.

Answer 1

a). In the below figure indifference curve IC1at point A the individual is willing to accept ∆M(=AC) income for sacrificing an hour (∆L) or BC of leisure.

Leisure and income varies at different income-leisure levels.

b). The effects on work incentives from income and substitution effects are:-

-When workers will do more hours of work because work get more value and rewards.

-The income effects of higher wages means workers will reduce the amount of hours they work.

-Maintain a target level of income through fewer hours.

-It states or implies that change in consumption of goods by consumer is based on their income.