Question

Figure 2 Shannon $ of consumption per year 30000 28000 26000 24000 22000 20000 18000 16000 14000 12000 5 10000 8000 6000 4000 2000 sample indifference curves 0 200 400 600 1166 800 1000 1200 1400 1600 1800 2000 2200 Hours of leisure per year Suppose all workers have 2000 hours to spend in work or leisure. Figure 2 displays sample indifference curves and a budget constraint corresponding to no income redistribution program for Shannon.

Answer 1

Q41)

No income redistribution program

At eqm, BC is Tangnent to IC

So leisure hours = 800

Work hours = 2000-800

= 1200 hours

42)

With 100% benefit reduction rate, for every hour , benefit reduced by 1 $ for every 1$ earned

So entire benefit is eliminated when work hours = 10,000/12

= 833.33 hours

Work hours = 2000-833.33

= 1166 hours

So budget constraint , orange line Kinked

So work hours zero

$ of consumption per year Shannon 30000 28000 26000 24000 22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 333 0 200 400 sample indifference curves 600 1166 800 1000 1200 1400 1600 1800 2000 2200 Hours of leisure per year

43) work hours 600

for every dollar earning, lose .5 dollars

So effective Wage per hour = 6

Benefit eliminated when work hours = 10,000/6= 16,666.67

Work hours = 333

$ of consumption per year Shannon 30000 28000 26000 24000 22000 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 333 0 200 400 sample indifference curves 600 800 1000 1200 1400 1600 1800 2000 2200 Hours of leisure per year

44) option 1)

With 50% reduction program, lie on higher IC

So prefer this program