Principles of Microeconomics, 7th Edition

Published by South-Western College
ISBN 10: 128516590X
ISBN 13: 978-1-28516-590-5

Chapter 1 - Part I - Ten Principles of Economics - Problems and Applications: 6

Answer

(a) The provision of Social Security discourages saving while working. (b) The reduction in benefits associated with higher earnings will discourage individuals from working. They may either work less or stop working completely.

Work Step by Step

(a) If an individual is sure that they will be eligible for government stipends by way of Social Security, it would make little sense to continue saving the same amount. This is because individuals save while working to guarantee financial security in the future. If the Social Security program can make a similar guarantee, it makes little sense for the individual to take it upon themselves to shoulder the burden. (b) The actions of individuals are highly motivated by self-interest. If working has a negative impact upon the individual, in that it reduces the benefits they receive, then it only makes sense that the individual would be discouraged from working as much if at all.
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