An individual can earn $12 per hour if he or she works. Assume that a person can work at most 24 hours per day times 30 days per month for a total of 720 hours. Thus, the axis intercepts, in the absence of any program, are 720 × $12 = $8,640 in consumption and 720 hours of leisure. Scenario: Suppose that a new welfare program is introduced where the government guarantees $600 per month in income and reduces the benefit by $1 for each $1 of labor income. Below are the budget constraints that show the monthly income-leisure trade-off. Monthly income $8,640 $600 720 Leisure (hours) With 40% reduction rate, when he/she works 30 hours, where will he/she maximize his/her utility? O A. Point B O B. Point C O C. Point D O D. Point F

An individual can earn $12 per hour if he or she works. Assume that a person can work at most 24 hours per day times 30 days per month for a total of 720 hours. Thus, the axis intercepts, in the absence of any program, are 720 × $12 = $8,640 in consumption and 720 hours of leisure. Scenario: Suppose that a new welfare program is introduced where the government guarantees $600 per month in income and reduces the benefit by $1 for each $1 of labor income. Below are the budget constraints that show the monthly income-leisure trade-off. Monthly income $8,640 $600 720 Leisure (hours) With 40% reduction rate, when he/she works 30 hours, where will he/she maximize his/her utility? O A. Point B O B. Point C O C. Point D O D. Point F

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.2P

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Suppose a person can work up to 80 hours per week at a pre-tax wage of $20 per hour but faces a constant 20% payroll tax. Assume that under these conditions the person maximizes utility by choosing to work 50 hours each week. The government proposes a negative income tax so that everyone receives $300 per week regardless of how much they work. To pay for the negative income tax, the payroll tax would be increased to 50%. Using the labor-leisure model, graphically show whether a person would be better off if the negative income tax is adopted and indicate whether hours worked increases or decreases due to the policy.
Consider an income guarantee program with an income guarantee of $5,000 and a benefit reduction rate of 40%. A person can work up to 2,000 hours per year at $10 per hour. a. Draw the person’s budget constraint with the income guarantee. b. Suppose that the income guarantee rises to $7,500 but with a 60% reduction rate. Draw the new budget constraint c. Which of these two income guarantee programs is more likely to discourage work? Explain. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Suppose that the federal government's welfare program pays $5,000 for the first five months of earnings, and 50% reduction thereafter. If this worker earns 2,000 dollars per month, assuming 12 months per year, answer the questions. a. Construct the yearly income-leisure constraint both graphically and equations. b. Compute the break-even level of income and leisure (the level of income that makes the welfare = 0). c. Compute the level of income when the leisure is 8 months. What is amount of earning income and what is the amount of welfare benefit? d. Compute the level of income when the leisure is 6 months. What is amount of earning income and what is the amount of welfare benefit? e. Compute the level of income when the leisure is 1 month. What is amount of earning income and what is the amount of welfare benefit?
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Consider a couple (a husband and a wife) that jointly represents their collective preferences between combinations of household production time (X) and purchased goods and services (Y) according to the formula W = X2Y, where W represents the level of welfare. Suppose the maximum time available in a day is 16 hours and currently the wife devotes 6 hours to market work (H) at a wage of $16 per hour. a. What is the level of welfare associated with the wife’s current situation? b. How much additional purchasing power would the wife contribute if her market work hours increased to 8? c. How much of an increase in purchased goods and services would be necessary to compensate for the additional 2 hours of lost household production? d. Should this couple choose to have the wife increase her market work by 2 hours? e. If this couple is raising a child, suppose that combinations of household production and purchased goods are now ranked according to the formula U = X3Y. Would the additional 2…