question archive A needy family consisting of a mother and three children currently receives cash benefits that average $12 per day
A needy family consisting of a mother and three children currently receives cash benefits that average $12 per day
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A needy family consisting of a mother and three children currently receives cash benefits that average $12 per day. The mother of this family is allowed to earn an average of $4 per day before her benefits begin to decline. After that, for each dollar earned, cash benefits decline by 67 cents. Plot the recipient’s money income–leisure tradeoff (budget) line under these circumstances. Assume that she can find work at $4 per hour. How many hours will she have to work per day before her benefits are eliminated? Assuming that her indifference curves for work and leisure are convex, show her equilibrium allocation of time between work and leisure per day. Show that it is possible to have more than one most-preferred outcome.
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Given Information:
Average cash benefits per day = $12
Mother earns an average = $4/ per day
Cash benefits decline = 0.67 cents per dollar
She can find work = $4 per hour
Decline per dollar = 1/0.67 = 1.49253
Decline for $12 = 1.49253 x 12 = $17.91044
$17.91044 can be earned in $17.91044 / $4 = 4.477611 hours
Therefore it will take 4.477611 hours to earn $17.91044
