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: 7

Answer

(a) The two-year limit creates an incentive to find work. It is likely that the individual will begin searching for a job while still receiving welfare. (b) The trade-off is an increase in efficiency at the cost of equality.

Work Step by Step

(a) The incentive to work comes from the knowledge that welfare payments will be finite. Because the individual knows they cannot live off of welfare indefinitely, they will go out to look for work proactively. (b) The system becomes more efficient because, overall, a two-year limit will decrease the number of those dependent upon welfare; however, there is a decrease in inequality because, inevitably, there will be those who can't find jobs once the assistance period has passed. Thus, there are individuals in need who are left without financial aid.
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