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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Exercise 15.2 and Exercise 15.3 asked you to describe the labor-leisure tradeoff for Jonathon. Since, in the first example, there is no monetary incentive for Jonathon to work, explain why he may choose to work anyway. Explain what the opportunity costs of working and not working might be for Jonathon in each example. Using your tables and graphs from Exercise 15.2 and Exercise 15.3 , analyze how the government welfare system affects Jonathan’s incentive to work.

To determine

The reason for Jonathan opting to work, the opportunity costs of working and not working in each case and the ways in which government programs affect Jonathans incentive to work.

Explanation

We are given a situation where Jonathan gets $10,000 if he does not work. While if he works, he gets $9,000 at the rate of $6/ hour. In this situation, his total earnings if he does not work are $10,000. Therefore, he does not have any incentive to work. However, he may still choose to work since, it helps him to gain experience and get aware of job opportunities. All this may also help him increase his earnings with experience.

Apart from this, he might consider the effects of inflation wearing off his fixed stipend of $10,000. Considering this, he might realize that the real value of government benefits is going to fall with time and choose to work in anticipation of earning better.

The opportunity cost of working is the $10,000 of stipend that he gets without working.

The opportunity cost of not working is $9,000 that he earns when he works for 1,500 hours per year at the rate of $6 per hour...

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