Question: Consider the following hypothetical welfare program: If someone is receiving welfare, he/she is given cash transfer of $800. However, if he/she decides to work, the grant is decreased by one dollar for every dollar

earned (for an effective tax rate of 100%). How would such a program affect the decision to work for the following two individuals? Is there any difference? Please explain, and state any assumptions that you make.

(a) Someone who is currently receiving welfare under this program?

(b) Someone who could quality for welfare but is not currently receiving it.