An income maintenance system is such that a person receives a benefit of 100 per week, which
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Question:
An income maintenance system is such that a person receives a benefit of 100 per week, which is reduced if the person’s income, Z, is above 200 at a rate of 40 percent (so that the benefit in this range is:
100 – 0.4 (Z – 200), falling to 0 at Z = 450.
a. Draw the after-benefit budget constraint.
b. Suppose that individuals have identical Cobb-Douglas utility functions given by:
U = 1/3 logY + 2/3 log (24 – L)
and have no income apart from earnings. Draw a diagram with the wage rate on the vertical axis and labor supply on the horizontal axis that shows the labor supply curve.
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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