Question: 5.12 Under a welfare plan, poor people are given a lump-sum payment of $L. If they accept this welfare payment, they must pay a high

5.12 Under a welfare plan, poor people are given a lump-sum payment of $L. If they accept this welfare payment, they must pay a high tax, t = 12

, on anything they earn. If they do not accept the welfare payment, they do not have to pay a tax on their earnings. Show that whether an individual accepts welfare depends on the individual’s tastes.

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