Question

TANF is the current iteration of welfare designed to aid poor families with children. Graph the...

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

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