Question

Assume the gross wage of w=$10 per hour and gross non-wage income YN = $5000 per...

Assume the gross wage of w=$10 per hour and gross non-wage income YN = $5000 per year. Assume a maximum of 6,000 hours of leisure per year (T= 6000 per year ), so that full income for the worker is $65,000.

Draw the budget constraint under each of the following taxes and transfer schemes.

1. A welfare program that pays $8,000 per year if the person does not work and reduces the welfare benefit dollar for dollar with earnings (100% benefit reduction rate). Assume that the individual does not have any other non-wage income (i.e., YN=0)

Homework Answers

Answer #1

We can calculate the consumption (which is equal to disposable income) at various level of leisure hours/ hour worked after welfare benefits given.

No. of hours worked, H Leisure hours, T Wage income, YW Welfare benefit Disposable income
0 6000 0 8000 8000
300 5700 3000 5000 8000
500 5500 5000 3000 8000
800 5200 8000 0 8000
1000 5000 10000 0 10000
1500 4500 15000 0 15000
2000 4000 20000 0 20000
2500 3500 25000 0 25000
3000 3000 30000 0 30000
3500 2500 35000 0 35000
4000 2000 40000 0 40000
4500 1500 45000 0 45000
5000 1000 50000 0 50000
5500 500 55000 0 55000
6000 0 60000 0 60000

We can build budget constraint with the help of above information


Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that a welfare program pays $200 per week if a person does not work and...
Assume that a welfare program pays $200 per week if a person does not work and reduces the welfare benefit of dollar for dollar with earnings. Assume that the individual does not have any other non wage income. Also assume that the individual has a market wage rate of $10/ hour. Assume a maximum of 120hours of leisure per week (T= 120/ week). Suppose that in the absence of the program, the person would work 20 hours per week. What...
Sarah has the following utility function and has a market wage of $10 per hour, and...
Sarah has the following utility function and has a market wage of $10 per hour, and can work upto 2000 hours per year. U = 100* lnC + 175* lnL ; Where C is the consumption and L is the leisure A) Determine the utility maximizing levels of C and L for Sarah. Also, determine the corresponding maximum level of utility of Sarah. Now assume that she is subject to a TANF program that features a benefit guarantee of $5000...
A maximizing worker is paid a wage of 10 dollars per hour and a non-labour salary...
A maximizing worker is paid a wage of 10 dollars per hour and a non-labour salary of 160 dollars per day. She has preferences for leisure and food defined by u(z, f) = z1/2f1/2. How many hours will she work?
Solving Moral Hazard by Lowering the Benefit Reduction Rate An individual can earn $15 per hour...
Solving Moral Hazard by Lowering the Benefit Reduction Rate An individual can earn $15 per hour if he or she works. Assume an individual can work up to 200 hours in a month, or not work at all and consume 200 hours of leisure. Draw the budget constraints that show the monthly consumption-leisure trade-off between the following three welfare programs. a. The government guarantees $900 per month in income and reduces that benefit by $1 for each $1 of labor...
a) Suppose that John can work up to 2,000 hours per year at a wage of...
a) Suppose that John can work up to 2,000 hours per year at a wage of $10.00 per hour, that he has no other source of income, and there is not yet TANF program in place. Draw his budget constraint (name it Figure 1.1). Explain how you constructed the graph. What is the slope of the budget constraint? Explain the slope. (b) Now, let’s introduce a TANF program. Consider an income guarantee program with an income guarantee of $5,000 and...
Suppose a single parent can work up to 16 hours per day at a wage rate...
Suppose a single parent can work up to 16 hours per day at a wage rate of $10.00 per hour. Various income maintenance programs have been developed to assure a minimum level of income for low-income families. Aid to Families with Dependent Children (AFDC) was established with the Social Security Act of 1935. The family was given an income subsidy depending on family size. Under this program, the family’s benefit was reduced by $1 for every dollar earned. Suppose the...
Assume the average worker has 100 hours of leisure and could earn $10 an hour. Suppose...
Assume the average worker has 100 hours of leisure and could earn $10 an hour. Suppose the Social Security disability insurance (DI) program was structured so that otherwise eligible recipients lost their entire disability benefit if they had any labor market earnings at all. Suppose, too, that Congress was concerned about the work disincentives inherent in this program, and that the relevant committee was studying two alternatives for increasing work incentives among those disabled enough to qualify for it. An...
Suppose that a worker’s utility (i.e., preferences) with respect to total income (Y) and hours of...
Suppose that a worker’s utility (i.e., preferences) with respect to total income (Y) and hours of leisure time per week (LT) can be represented by the following Cobb-Douglas utility function: U = Y0.4 ∙ LT0.6 (note: A=1; α=0.4; β=0.6) Assume that the market wage is $25 per hour of work (H), and his/her non-labor income is $300 per week. The worker has 70 hours per week to allocate between labor market activity and leisure time (i.e., T = 70). Given...
1) Which of the following would unambiguously predict a decrease in desired hours of work? a....
1) Which of the following would unambiguously predict a decrease in desired hours of work? a. The substitution effect of a wage decrease
 b. The income effect of a wage decrease
 c. A wage increase d. The substitution effect of a decline in income tax rates 2) For income and leisure time, a higher level of utility is achieved by moving to the _____ on an indifference _____. 
 a. Northeast; curve 
b. Southwest; curve
 c. Northeast; map 
d. Southwest; map...
Assume that on September 1, 2013, Costco collected $7,200 in membership fees from customers for service...
Assume that on September 1, 2013, Costco collected $7,200 in membership fees from customers for service in the next 12 months. How would Costco record this transaction on September 1, 2013? Select one: a. increase Cash by $7,200 and decrease Accounts Receivable by $7,200 b. increase Cash by $7,200 and decrease Inventory by $7,200 c. increase Cash by $7,200 and increase Unearned Revenue by $7,200 d. increase Cash by $7,200 and increase Revenue by $7,200, increase Net Income by $7,200,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT