6.Consider the following two antipoverty programs: (1) A payment of $10/day is t

Question

6.Consider the following two antipoverty programs: (1) A payment of $10/day is to be given this year to each person who was classified as poor last year; and (2) each person classified as poor will be given a benefit equal to 20 percent of the wage income he earns each day this year. a. Assuming that poor persons have the options of working at $4/hr, show how each program would affect the daily budget constraint of a representative poor worker during the current year. b. Which program would be most likely to reduce the number of hours worked?

Explanation / Answer

a) (1) Earnings of poor people by programme 1 are $[10 + 4* (Hours worked/day)] = 10 + 4H (2) Earnings of poor people by programme 2 are $[4*1.2* (Hours worked/day)] = 4.8H Hence in an equivalent case, 10 + 4 H = 4.8 H and hence, H = 12.5 hours b) Hence, If a poor person can work for more than 12. hours, programme 2 is beneficial, but if not, then project 1 is beneficial to the poor person

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