Economics 201

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Chapter 1:
8. A recent bill reforming the government’s anti- poverty programs limited many welfare recipients to only two years of benefits.
A. How does this change affect the incentives for working?
Answer: Well, simply put, if the bill is enforced and a person becomes ineligible for welfare - not working won't be an option. But I have my doubts that America's social service or welfare programs will ever be truly efficient. There are just too much red tape, administration, fraud and loop holes.

B. How might this change represent a trade-off between equality and efficiency? Answer: Governments are often faced with trade-offs between equity and efficiency goals of tax policy. There is an abundance of examples of conflicts between equity and efficiency inherent in the taxation of income generating activity. Specifically, the choice of progressive tax rate structures reduces vertical inequality at least in statutory terms but increases inefficiency by reducing incentives to utilize labor and capital resources may prompt avoidance and evasion. 12. Discuss each of the following statements from the standpoint of equality and efficiency.

A. “Everyone in society should be guaranteed the best healthcare possible.” Answer: If everyone were guaranteed the best health care possible, much more of society’s resources would be devoted to providing health care than is now the case. Would that be efficient? If you think that currently doctors form a monopoly and restrict health care to keep their incomes high, you might think efficiency would increase by providing more health care. But more likely, if the government mandated increased spending on health care, the economy would be less efficient because it would give people more health care than they would choose to pay for. From the point of view of equity, if poor people are less likely to have adequate health care, providing more health care would represent an improvement. Each person would have a more even slice...
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