Question

1. The government is considering three policies to provide assistance to low-income households. Policy 1 would provide a payment of $200 per week to anyone who does not work, but nothing to workers. Policy 2 would give workers $1 for each $1 they earn in the labor market, up to matching $200 of labor earnings. Policy 3 would provide $200 per week to everyone, regardless of their labor-supply decision. a. For each policy, draw the weekly budget constraint for an individual who has 0 non-labor income and can earn a wage of $10 per hour. Assume there are 80 hours available for consumption and leisure each week (i.e., $T = 80$). b. Consider an individual with utility function $U = (C - 60)(L - 60)$. The marginal utility of leisure is $C - 60$, and the marginal utility of consumption is $L - 60$. How much would this person work under each policy? c. How much utility would this person receive under each policy? d. How much would this person receive in publicly funded benefits under each policy? e. Policymakers may have any number of concerns about these policies. Some may want to maximize labor supply, some may want to maximize assistance to low- income households, some may want to achieve some balance between providing assistance and encouraging work, and some may have completely different concerns. In your own words, and drawing on economic theory, discuss the tradeoffs inherent in these three policies.

          1. The government is considering three policies to provide assistance to low-income
households. Policy 1 would provide a payment of $200 per week to anyone who does not
work, but nothing to workers. Policy 2 would give workers $1 for each $1 they earn in
the labor market, up to matching $200 of labor earnings. Policy 3 would provide $200
per week to everyone, regardless of their labor-supply decision.
a. For each policy, draw the weekly budget constraint for an individual who has 0
non-labor income and can earn a wage of $10 per hour. Assume there are 80
hours available for consumption and leisure each week (i.e., $T = 80$).
b. Consider an individual with utility function $U = (C - 60)(L - 60)$. The marginal
utility of leisure is $C - 60$, and the marginal utility of consumption is $L - 60$.
How much would this person work under each policy?
c. How much utility would this person receive under each policy?
d. How much would this person receive in publicly funded benefits under each
policy?
e. Policymakers may have any number of concerns about these policies. Some may
want to maximize labor supply, some may want to maximize assistance to low-
income households, some may want to achieve some balance between providing
assistance and encouraging work, and some may have completely different
concerns. In your own words, and drawing on economic theory, discuss the
tradeoffs inherent in these three policies.

1. The government is considering three policies to provide assistance to low-income
households. Policy 1 would provide a payment of 200 per week to anyone who does not
work, but nothing to workers. Policy 2 would give workers1 for each 1 they earn in
the labor market, up to matching200 of labor earnings. Policy 3 would provide 200
per week to everyone, regardless of their labor-supply decision.
a. For each policy, draw the weekly budget constraint for an individual who has 0
non-labor income and can earn a wage of10 per hour. Assume there are 80
hours available for consumption and leisure each week (i.e., T = 80).
b. Consider an individual with utility function U = (C - 60)(L - 60). The marginal
utility of leisure is C - 60, and the marginal utility of consumption is L - 60.
How much would this person work under each policy?
c. How much utility would this person receive under each policy?
d. How much would this person receive in publicly funded benefits under each
policy?
e. Policymakers may have any number of concerns about these policies. Some may
want to maximize labor supply, some may want to maximize assistance to low-
income households, some may want to achieve some balance between providing
assistance and encouraging work, and some may have completely different
concerns. In your own words, and drawing on economic theory, discuss the
tradeoffs inherent in these three policies.

Added by Christina S.

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