An individual can earn $15 per hour if he works. Assume that a person can work at most 12 hours per day times 30 days per month for a total of 360 hours. a) Draw the budget constraint that shows the monthly consumption–leisure trade-off if the government guarantees $450 per month in income and reduces the benefit by $1 for each $1 of labour income. Discuss the possible inefficiency due to this welfare program. b) Draw the budget constraint that shows the monthly consumption–leisure trade-off if the government guarantees $225 per month in income and reduces the benefit by $1 for every $2 of labour income. Discuss the possible inefficiency due to this welfare program.
An individual can earn $15 per hour if he works. Assume that a person can work at most 12 hours per day times 30 days per month for a total of 360 hours.
a) Draw the budget constraint that shows the monthly consumption–leisure trade-off if the government guarantees $450 per month in income and reduces the benefit by $1 for each $1 of labour income. Discuss the possible inefficiency due to this welfare program.
b) Draw the budget constraint that shows the monthly consumption–leisure trade-off if the government guarantees $225 per month in income and reduces the benefit by $1 for every $2 of labour income. Discuss the possible inefficiency due to this welfare program.
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