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    public assistance plans

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    Key Question:
    The following table contains three hypothetical public assistance plans.

    Plan I
    Earned Income Transfer Payment Total Income
    $0 $4000 $4000
    2000 3000 5000
    4000 2000 6000
    6000 1000 7000

    Plan 2
    Earned Income Transfer Payment Total Income
    $0 $4000 $4000
    4000 3000 7000
    8000 2000 10000
    12000 1000 13000

    Plan 3
    Earned Income Transfer Payment Total Income
    $0 $8000 $8000
    4000 6000 10000
    8000 4000 12000
    12000 2000 14000

    a. Determine the minimum income, the benefit- reduction rate, and the break-even income for each plan.
    b. Which plan is the most costly? The least costly? Which plan is the most effective in reducing
    poverty? The least effective? Which plan contains the strongest disincentive to work? The weakest disincentive to work?
    c. Use your answers in part Ii to explain the following statement: "The dilemma of public assistance is that you cannot bring families up to the poverty level and simultaneously preserve work incentives (without work requirements) and minimize program costs."

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    https://brainmass.com/economics/poverty/public-assistance-plans-99339

    Solution Preview

    (a) Plan 1:
    Minimum income = $4,000;
    Benefit-reduction rate = +1000/2000 = 50 percent;
    Break-even income = $4000/0.5=$8,000

    Plan 2:
    Minimum income = $4,000;
    Benefit-reduction rate = +1000/4000 = 25 percent;
    Break-even income = $4000/0.25=$16,000

    Plan 3:
    Minimum income = $8,000; ...

    Solution Summary

    This posting determines the minimum income, the benefit- reduction rate, and the break-even income for each plan.

    $2.19