A welfare program offers benefit B to those not working. For those working, it reduces benefit by a dollar for every dollar earned until no benefits are left to be paid. It is found that increasing B results in longer hours of work for those who continue to work. The likely cause of this is
A) the dollar for dollar reduction in B reduces the increase in income to zero, resulting in an income effect that causes people to work longer hours.
B) only those with a higher preference for working (flatter utility curves) will continue to work
C) the increase in B reduces the substitution effect.
D) the increase in B results in an income and substitution effect on those working that causes them to work longer hours.
Correct Answer:
Verified
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