Illustrate lornes decision if he decides to work

Assignment Help Business Economics

Reference no: EM1317906

Q. Assume Lorne has 20 hours every day that can be spent either working or at "leisure". Assume (at least
initially) that Lorne earns all income from working at the after-tax wage rate of $10/hour.

(a) Using an indifference curve, illustrate Lorne's decision if he decides to work 10 hours every day. Estimate and in your diagram, identify Lorne's quantity of leisure, supply of labour and consumption. Illustrate what is the price of leisure?

(b) Assume the government institutes a program that will pay Lorne $100/day. Explain however, if he works, he will have to pay back the government benefit with any labour income he earns until the full $100 is paid back. Only after that will he be able keep any further labour income. Illustrate the new budget line in your diagram. Explain how much labour will he supply? Explain how much consumption will he have? Is he better off or worse off than he was in part (a)?

(c) Now Assume the government changes the program. It will still pay $100/day, but now if he works, Lorne will have to pay only half of his labour income to the government until the full $100 is paid back. Illustrate the new budget line in your diagram. If he chooses to work 4 hours under the new scheme, explain how much consumption will he have? Is he better off or worse off than he was in part (b)?

Which version of the program costs the government more?

Reference no: EM1317906

Questions Cloud

Use substitution method : Use substitution method

Find the largest and smallest revenues your company : Application of differential calculus: Maximization and Minimization - what are the largest and smallest revenues your company your company can make under this deal?

Probability of answering question correctly : Find the probability that he will answer at least 3 questions correctly.

Importance of understanding traits : Discuss the importance of understanding traits, skills, and the styles approach to leadership during the process of leadership development.

Illustrate lornes decision if he decides to work : Using an indifference curve, illustrate Lorne's decision if he decides to work 10 hours every day.

The variable cost every unitcompany decided to raise price : A company currently sells 60,00 units a month at $10 every unit. The variable cost every unit is $6. The company decided to raise the price about 10%.

Solving equation using substitution method : Solving equation using substitution method.

Explain how much additional profit do you earn using a two : Explain how much additional profit do you earn using a two-part pricing strategy compared with charging this customer a every-unit price.

Identify an ethical framework : Identify an ethical framework other than Free Market Ethics that applies to this situation and discuss how it may have influenced the executives of the company.

User Account

All Pages