Purchase Solution

Benefit reduction rate

Not what you're looking for?

Ask Custom Question

Consider an income guarantee program with an income guarantee of $6,000 and a benefit reduction rate of 50%. A person can work up to 2,000 hours per year at $8 per hour.
A. Draw the person's budget constraint with the income guarantee.
B. Suppose that the income guarantee rises to $9,000 but with a 75% reduction rate. Draw the new budget constraint.
C. Which of these two incomes guarantee programs is more likely to discourage work. Explain.

Purchase this Solution
Solution Summary

Benefit reduction rate is applied.

Solution Preview

Hi,

Get the answer with attachment.

Regards

Answer:
Given that,
Income guarantee=$6,000
Benefit reduction rate=50%
Person can work upto=2,000 hours per year at $8 per hour

(a) If a person works for 0 hours i.e. he/she consumes 2,000 hours of leisure then in this situation he/she will be eligible for a complete $6,000 of income guarantee. But if it works for 1,500 hrs and consumes only 500 hrs of leisure then in this situation he will earn $8*1,500=$12,000 and this is equal to =$6,000/0.5=$12,000, hence ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

View More Free Quizzes
Related BrainMass Solutions

  • public assistance plans

    (a) Plan 1: Minimum income = $4,000; Benefit-reduction rate = +1000/2000 = 50 percent; Break-even income = $4000/0.5=$8,000 Plan 2: Minimum income = $4,000; Benefit-reduction rate = +1000/4000 = 25 percent; Break-even income = $4000/

  • Lockbox System - Garden Groves, Inc.

    cash as a result of implementing a lock box system: Saving in the collection float= 3 days Thus Reduction in outstanding cash = days * Daily collections = =3*150*15000 $6,750,000.00 Benefit Benefit = Reduction in outstanding cash * Interest

  • Lock Box

    The minimum reduction in time would be when the cost and benefit would be the same. The equation comes to 2,000X0.015%Xdays=0.4 this gives days = 1.33 A minimum reduction in time of 1.33 days would justify the use of lock box.

  • Lock Boxes

    The minimum reduction in time would be when the cost and benefit would be the same. The equation comes to 2,000X0.015%Xdays=0.4 this gives days = 1.33 A minimum reduction in time of 1.33 days would justify the use of lock box.

  • Lock boxes and collections

    Dollar return = Reduction in outstanding cash * Interest rate= $ 37800. c. what is the maximum monthly charge the company should pay for this lock box system? Monthly benefit = Dollar return/12=$3150.

  • Lock Box

    What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? The minimum reduction in time would be when the cost and benefit would be the same.

  • Lock Box

    What minimum reduction in the time to collect and process each check is needed to justify use of the lock-box system? The minimum reduction in time would be when the cost and benefit would be the same.

  • Direct or Indirect Foreign Investment

    (Some might say that the investor will also benefit from an increase of the foreign exchange rate. This is true, but don't forget that big variance of return means RISK!) You will find the answer to this puzzling question inside.

  • Impact of cash discount for TNT, Inc

    rate * Cash sales Thus net benefit/loss= 1068.493151 (Savings - cash discounts) Thus net benefit is in positive and hence one can accept the cash discount Please see the attached file.

View More Related Solutions