The most obvious impact on a household who participates in transfer program is the increase in non-labor income,which can _____________.
A) Tighten budget constraints and induce substitution effects
B) Relax budget constraints and induce substitution effects
C) Tighten budget constraints and induce income effects
D) Relax budget constraints and induce income effects

Question

Quizplus · Accepted Answer

Transfer programs like cash transfers and welfare payments provide households with additional income, which relaxes their budget constraints and induces income effects. This means that they can now afford to purchase more goods and services, leading to an increase in their welfare. There is no tightening of budget constraints, as the household now has access to more resources. Furthermore, the increase in non-labor income may induce substitution effects, as the household may choose to substitute away from cheaper goods towards more expensive ones, but this is not the most obvious impact on the household.

The Most Obvious Impact on a Household Who Participates in Transfer