Find the earnings level at which the earnings subsidy ends

Reference no: EM13209612

Suppose a single parent can work up to 16 hours per day at a wage rate of $5.00 per hour. The Texas Family Assistance Program (a social welfare program) offers cash transfers to low-income families. Suppose that the maximum transfer is $20 for households without income; for each dollar earned, the transfer is reduced by $0.50.

Draw the daily budget constraint without any program participation for the single parent described above. On the same graph, draw the daily budget constraint under The Texas Family Assistance Program for the single parent described above. Find the earnings level at which the earnings subsidy ends. Discuss the effect of the program participation on work incentives.

Reference no: EM13209612

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