In a simple economy, taxes are calculated as one-fourth of income minus \$10,000. If a family earns \$20,000, what is their tax liability or subsidy under a negative income tax?

• A. They receive a \$5,000 subsidy.
• B. They pay \$5,000 in taxes.
• C. They receive a \$10,000 subsidy.
• D. They pay \$0 in taxes.

Answer: (A)