A. Smith, who is currently unemployed, is a participant in four welfare pro-grams that offer daily benefits of $10 each to people with no earned income. Each program then curtails its benefits by 50 cents for every dollar of income a recipient earns. A. Smith’s identical twin brother, B. Smith, is enrolled in an experimental negative income tax program that gives him $40/day in benefits and then taxes him at the rate of 50 percent on each dollar of earned income. Now suppose A. Smith is offered a job that pays $4/hr, the same wage his brother earns.
a. Draw the budget constraint for each twin.
b. How many hours would they have to work before A. Smith ends up with more net cash and benefits than his brother?