Suppose a community has a cash welfare program that pays $2,000 annually to individuals earning less than $20,000 per year. Jamie's salary is $19,500. She is offered a promotion that would bring her annual salary to $21,000. Jamie declines the promotion, because she would ultimately take home $500 less after losing access to cash welfare. This is an example of a reduction in _______ caused by the design of a(n)_______ program.

Question

Quizplus · Accepted Answer

This scenario illustrates a reduction in efficiency caused by the design of a means-tested program. The welfare system disincentivizes earning more because the marginal gain from the promotion is offset by the loss of benefits, leading to a situation where it's not economically beneficial for Jamie to accept the promotion.

Suppose a Community Has a Cash Welfare Program That Pays