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The government has decided it wants to make Peter better off. It is deciding whether to...

The government has decided it wants to make Peter better off. It is deciding whether to give him a lump sum grant or to subsidize his hourly wages. Show in a diagram that:

a. If both interventions make Peter equally well off, the lump sum grant will reduce Peter’s labor supply by more than the wage subsidy.
b. Under the lump sum grant, Peter can be made just as well off as under the wage subsidy at a lower total cost to the government.

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