Consider the following earnings supplement program, modelled after the Self-Sufficiency Project. An individual can work a...

Consider the following earnings supplement program, modelled after the Self-Sufficiency Project. An individual can work a maximum of 60 hours per week, at a wage rate of $5 per hour. Welfare benefits are fixed at $200 per week, with a 100 percent taxback on labour earnings. Finally, the earnings supplement equals half the difference between an individual’s labour earnings and the benchmark earnings of $450 per week.

This supplement can be collected only if the individual forgoes welfare benefits and works a minimum of 30 hours per week.

Draw the individual’s budget constraint and analyze the work decision.

Expert Solution

Rahul Sunny answered 2 years ago

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