Illustrate how work incentives are reduced

Reference no: EM131777065

Question: How to solve the following question?

Consider a welfare program (such as food stamps) with benefits that decrease as an individual's income increases. Draw the individual's budget constraint with and without the subsidy. (Put hours of work on the horizontal axis, and income on the vertical axis.) Use the diagram to illustrate how work incentives are reduced and how a fixed dollar subsidy could lead the individual to the same level of utility at lower dollar cost.

Reference no: EM131777065

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