2. Consider a Universal Basic Income (UBI) program: every person over age 18 is given $10,000 per year, regardless of their labor income or assets. Suppose there is no other welfare system or benefits for the poor.

a. Draw a person’s budget constraint with the program, and without the program (that is, with no government help). Be sure to label which is which.

b. Using income and substitution effects, explain the theoretical effect of the UBI program on people’s labor supply (how much they want to work).

c. Suppose instead the $10,000 is slowly taken away as a person earns money in the labor market. That is, you get $10,000 if you earn $0 in labor income, but as you earn some labor income, the $10,000 is taken away until it is all gone. Using income and substitution effects, explain the theoretical effect of this program on people’s labor supply (how much they want to work).

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a Without the UBI program a persons budget constraint would be represented by a straight line as the... View the full answer