(Solved): ) Suppose That A Person Has 2000 Hours To Allocate Each Year Between Leisure And Work. Derive The E ...
) Suppose that a person has 2000 hours to allocate each year
between leisure and work.
Derive the equation of his budget constraint given an hourly
wage of $15/hour. SHOW ALL YOUR WORK.
Graph his budget constraint line based on the equation you
derived in part a. (Consumption (C) on the vertical axis
and leisure (L) on the horizontal axis). Please
make sure to include the value for the vertical and horizontal
intercepts.
Now suppose that the local government introduces an income
guarantee program for single parents in which the income transfer
is $10,000 per year if an individual does not work during that year
(this dollar amount represents the benefit guarantee). If the
individual decides to work, this transfer program imposes a 100%
benefit reduction rate (e.g., each additional hourly wage earned is
reduced by 100%). Derive the new budget constraint equation that
corresponds to this scenario. SHOW ALL YOUR
WORK.
Draw the budget line that corresponds to the new scenario on a
new graph. (Consumption (C) on the vertical axis and
leisure (L) on the horizontal axis).