Imagine that the government reworks the welfare policy that was affecting Jonathan in question 1, so that for each dollar someone like Jonathan earns at work, his government benefits diminish by only 30 cents. Reconstruct the table from question 1 to account for this change in policy. Draw Jonathan’s labor-leisure opportunity sets, both for before this welfare program is enacted and after it is enacted.

Question 1

Describe how each of these changes is likely to affect poverty and inequality:

a. Incomes rise for low-income and high-income workers, but rise more for the high-income earners.

b. Incomes fall for low-income and high-income workers, but fall more for high-income earners.