Draw the budget constraint

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1). A poor person who has an income of $1,000 receives $100 worth of food stamps. Draw the budget constraint if the food stamp recipient can sell these coupons on the black market for less than their face value.

2). Under a welfare plan, poor people are given a lump sum payment of $L. If they accept this welfare payment, they must pay a high tax, t= 1/2, on anything they earn. If they don't have to pay a tax on their earnings. Show that whether an individual accepts welfare depends on the individual's tastes.

3). Suppose that Roy could choose how many hours to work at a wage of w and chose to work seven hours a day. The employer now offers him time-and-a-half wages (1.5w) for every hour he works beyond a minimum of eight hours per day. Show how his budget constraint changes. Will he choose to work more than seven hours a day?

Reference no: EM13150976


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