Leo is a welfare recipient who qualifies for two means-tested cash benefits.If he does not earn any income,he receives $225 from each benefit.For each dollar he earns (which his employer is required to report to the welfare agency),each benefit is reduced by 75 cents until the benefit equals zero.
If Leo only values income and not how the income was acquired,then he must earn __________ to be as well off as when he earns __________ and receives benefits.

Question

Quizplus · Accepted Answer

If Leo does not earn any income, he receives $225 from each benefit, which means he gets $450 in total. When he earns income, the benefits are reduced by 75 cents for every dollar he earns. Therefore, if he wants to be as well off as when he earns nothing and receives benefits, he needs to earn enough income that would make the benefits reduce to zero.

Let's assume that Leo earns x dollars. Then, the reduction in benefits would be:

- Benefit 1: 0.75x
- Benefit 2: 0.75x

To find out when the benefits will be reduced to zero, we need to set up an equation:

225 - 0.75x = 0   (for Benefit 1)
225 - 0.75x = 0   (for Benefit 2)

Solving for x, we get:

x = 300

This means that Leo needs to earn $300 for each benefit to be reduced to zero. Since Leo qualifies for two benefits, he needs to earn $600 in total. Therefore, Leo must earn $450 + $600 = $1050 to be as well off as when he earns nothing and receives benefits.

Out of the given options, the closest one to $1050 is option C, which is $450. Therefore, the answer is C.

Leo Is a Welfare Recipient Who Qualifies for Two Means-Tested