Question

A, Use an indifference curve diagram to show why winning the lottery likely changes a winner’s...

  1. A, Use an indifference curve diagram to show why winning the lottery likely changes a winner’s work behavior.

B, Use an indifference curve diagram with diminishing marginal utility to show why unemployment compensation should be less than 100% of pre-unemployment benefits.

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Answer #1

A. The more the probability of winning a lottery, the less the individual will work because the individual may get a substantial amount which will induce him to reduce labor hours and increase leisure hours

B.

Indifference curve with diminishing marginal utility is the general indifference curve which is downward sloping and convex...
I.e. for every unit increase in x, the sacrifice of y goes on decreasing i.e. dy/dx < 0

If the compensation is at 100% level as of employment, the individual will be indifferent between working and getting unemployment allowance...
Moreover, the individual will prefer to get unemployment allowance only...

Therefore to induce the individual to work the unemployment allowance need to be less than 100% pre unemployment benefits.

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