A needy family 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. Create a graph on a spreadsheet program (such as MS Excel),
The mother would have to work about 5.5 hours per day for her benefits to be completely eliminated.
The indifference curve between labor and leisure is very subjective. It all depends on how much value the mother puts on each hour of her leisure time. I have included a hypothetical value of each hour of leisure. ...
The expert examines economics for work and leisure.