Draw a labor-leisure graph to show the budget constraint (intercepts, slope) for a person that earns $10 wage per hour worked and has 300 hours per month available to allocate between leisure and work. Include an indifference curve showing the person maximizes utility working 100 hours (also, show leisure hours and income on graph).

On the same graph, draw the budget constraint with an AFDC-type of assistance program, where the government guarantees the person $500 minimum monthly income (even if they do not work) but reduces the $500 assistance by $1 for every $1 the person earns at work (i.e., earn $10, assistance reduced to $490).  How do you expect this government program to impact the person's work decisions? Work more, less, no effect? Explain using labor-leisure model/graph and relevant concepts. 




PART B

Show graphically the effect of the basic-income program on your labor leisure graph, where $500 cash assistance is given with no restrictions. Explain you expect the work incentives under the program compare to the program in part a.




PART C 

Use your graph to explain/show that participants in the program should be better off

Answer rating: 100% (QA)

Answer Sure lets start by drawing the laborleisure graph for the individuals budget constraint with ... View the full answer