Consider two antipoverty programs, AFDC and EITC, and there affects on labor sup
ID: 1220475 • Letter: C
Question
Consider two antipoverty programs, AFDC and EITC, and there affects on labor supply. Assume AFDC gives a weekly payment of nonlabor income while effectively reducing a participants wage by half. How would income effects change a workers consumption/leisure decision? How would substitution effects change a workers consumption/leisure decision? What would happen to a participants reservation wage? Assume EITC simply increases a poor workers wage. How would .income effects change a workers consumption/leisure decision? How would substitution effects change a workers consumption/leisure decision? What would happen to a participants likelihood of participating in the labor force?Explanation / Answer
a) In the above question income effect of AFDC will not change a woker's consumption becouse the employee has cut the workers wage by half and is giving the weekly payment also the worker will have less liesure now this is the sustitutiion effect.
b) if we assume that EITC simply increases a poor workers wage than the income effect will be positive he can increase the living standard can remove the poverty, can meet his basic neccessaties easily.