Question

1. Insurance Program :

• Wage is $8/hour.

• There are 10 hours available for work or leisure.

• Eligible recipients get a check for $24/day when they are off work.

• Once the recipient starts working, they get a check for the difference between their earnings and $24. For a period of time spent at work, they will have a constant total income of $24.

• When the recipient earns more than $24, they are ineligible for the program

To draw the budget constraint, answer the following questions:

a. How much money do you earn at 10 hours of leisure and 0 hours of work?

b. How many hours does a person need to work to earn $24 and be ineligible for the program?

c. Assume you work all 10 hours and receive no DI, how much income do you have now?

Answer 1

a. How much money do you earn at 10 hours of leisure and 0 hours of work?

Read the following statement again, "Eligible recipients get a check for $24/day when they are off work."

It means you are off work. In this case, as stated, you get $24 for a day.


b. How many hours does a person need to work to earn $24 and be ineligible for the program?

Read again the following statement, "For a period of time spent at work, they will have a constant total income of $24." Ok? Also keeping in mind the wage rate of $8 per hour, we can say that the period of time of 3 hours spent at work will entitle a person to earn $24 and be ineligible for the program.


c. Assume you work all 10 hours and receive no DI, how much income do you have now?

Now, read the statement again, "Once the recipient starts working, they get a check for the difference between their earnings and $24. For a period of time spent at work, they will have a constant total income of $24."

In the given case:

Total income earned = Constant income of $24 + (10 hours * $8 minus $24)
Total income earned = $24 + ($80 - $24)
Total income earned = $80