The government is considering three antipoverty programs. Program I gives a cash grant of $200 to anyone who does not work at all. If you work, you do not receive the grant. Program II gives a $200 cash grant to anyone who works AT LEAST 20 hours. Program III gives a wage subsidy of $10 per hour up to 20 hours and $5 per hour after that.

A. On a graph, draw budget constraints for the three programs. Be sure to make it clear which program is which. (you can assume that the wage rate was $10/hour prior to any program and that every worker has an endowment of 100 hours of time).

B. Further assume that there are two types of workers, which we will call LAZY (high MRS of consumption for leisure) and BUSY (low MRS of consumption for leisure), and that the government cares BOTH about increasing hours of work and increasing incomes. Explain which program would be preferred by each group, and WHY. Your answer should reference substitution and wealth effects, where appropriate.

Answer rating: 100% (QA)

A A On a graph draw budget constraints for the three programs Be sure to make it clear which program is which you can assume that the wage rate was 10... View the full answer