Use the following formula to answer the indicated question: Welfare benefit = Maximum benefit - Wages A welfare system based on the welfare formula given
A. Will increase the risk of moral hazard.
B. Will increase the number of people eligible for welfare.
C. Has an effective marginal tax rate of 50 percent for welfare recipients.
D. Will increase work incentives.
Answer: A
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Offering to pay the passenger in front of you to keep her from reclining her airplane seat is an example of
A) a tradable exchange contract. B) a Pigovian solution to an externality situation. C) a Coasian solution to an externality situation. D) command-and-control policy.
With a negative income tax, the larger the difference between the break-even income level and the guaranteed level,
a. the greater the tax rate (by definition). b. the greater the incentive to work. c. the smaller the number of people eligible to receive benefits. d. the more inequitable the resulting distribution of income will be.