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)
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|
We can build budget constraint with the help of above information
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