1. Medicaid work disincentive effects. Consider Figure 18.7, which depicts the labor market disincentive effects of Medicaid. In the figure:• L is the number of hours worked per year.• ¯I is the income threshold for Medicaid eligibility. If a worker earns less than ¯I, he is eligible for C free units of health care, which cost p per unit on the open market.• The solid line indicates the total compensation (wage plus Medicaid benefits) that a worker earns as a function of L, hours worked.• The slope of the solid line reflects the hourly wagea. In this model, workers earn the same total assets whether they work L1 or L2 hours. Is the worker better off at L1 or L2 hours of work? The graph illustrates the relationship between assets and a variable, denoted as \( L \), which could represent factors such as leverage or risk level.### Axis Labels- The vertical axis represents "Assets."- The horizontal axis represents the variable \( L \).### Lines and Points- **Solid Line Segment 1**: Starts from \( (0, I + pC) \) and increases with an upward slope until point \( L_1 \), intersecting at \( \bar{I} \).- **Solid Line Break to Segment 2**: At \( L_1 \), the line jumps vertically, then continues to rise with the original slope beyond \( L_2 \). - **Dashed Line**: Begins at \( (0, I) \) and increases with a constant slope across the graph. This line serves as a baseline for comparing the two higher asset paths.### Important Points- \( I \): Represents an initial asset level.- \( I + pC \): Indicates an increased asset level due to an additional factor \( pC \).- \( \bar{I} \): Denotes a threshold or benchmark asset level.- \( L_1 \) and \( L_2 \): Specific values on the \( L \)-axis where notable changes occur in asset levels.### AnalysisThe graph shows how asset levels evolve with increasing \( L \). Initially, assets grow steadily with an additional component \( pC \). At \( L_1 \), there's a significant jump in assets, indicating a threshold effect or policy change. Once surpassing \( L_1 \), asset growth resumes its original trajectory.This visual could be used to study financial strategies, risk management, or policy implications affecting asset accumulation.

Here the total assets earned by labors working wither for L1 or L2 hours are the same. So to know at…

Answered: 1. Medicaid work disincentive effects.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. Medicaid work disincentive effects. Consider Figure 18.7, which depicts the labor market disincentive effects of Medicaid. In the figure:
• L is the number of hours worked per year.
• ¯I is the income threshold for Medicaid eligibility. If a worker earns less than ¯I, he is eligible for C free units of health care, which cost p per unit on the open market.
• The solid line indicates the total compensation (wage plus Medicaid benefits) that a worker earns as a function of L, hours worked.
• The slope of the solid line reflects the hourly wage

a. In this model, workers earn the same total assets whether they work L1 or L2 hours. Is the worker better off at L1 or L2 hours of work?

The graph illustrates the relationship between assets and a variable, denoted as \( L \), which could represent factors such as leverage or risk level.

### Axis Labels
- The vertical axis represents "Assets."
- The horizontal axis represents the variable \( L \).

### Lines and Points
- **Solid Line Segment 1**: Starts from \( (0, I + pC) \) and increases with an upward slope until point \( L_1 \), intersecting at \( \bar{I} \).
- **Solid Line Break to Segment 2**: At \( L_1 \), the line jumps vertically, then continues to rise with the original slope beyond \( L_2 \).

- **Dashed Line**: Begins at \( (0, I) \) and increases with a constant slope across the graph. This line serves as a baseline for comparing the two higher asset paths.

### Important Points
- \( I \): Represents an initial asset level.
- \( I + pC \): Indicates an increased asset level due to an additional factor \( pC \).
- \( \bar{I} \): Denotes a threshold or benchmark asset level.
- \( L_1 \) and \( L_2 \): Specific values on the \( L \)-axis where notable changes occur in asset levels.

### Analysis
The graph shows how asset levels evolve with increasing \( L \). Initially, assets grow steadily with an additional component \( pC \). At \( L_1 \), there's a significant jump in assets, indicating a threshold effect or policy change. Once surpassing \( L_1 \), asset growth resumes its original trajectory.

This visual could be used to study financial strategies, risk management, or policy implications affecting asset accumulation.

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