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2. (25 points) Suppose that John qualifies for a cash benefit of $20 per day but could earn $10 per hour working in a local
2. (25 points) Suppose that John qualifies for a cash benefit of $20 per day but could earn $10 per hour working in a local Duncan Donuts. As an incentive to work, John is al- lowed to earn $10 per day before his cash benefit is reduced by $.50 for each dollar he earns. a.) Please draw a correctly labeled income-leisure graph plotting his cash benefit, wage rate (budget line), 16 hours of leisure and/or work, total income, and utility curve. b.) List the formula used and calculate the number of hours John can work and the in- come he can earn before his $20 benefit is eliminated. Please plot this line on the graph in part (a) and show the different slopes of the budget line, similar to what you did on the assignments. c.) Using an indifference curve analysis, illustrate on your graph in part (a) how John would be indifferent between not working at all and working until his $20 transfer is eliminated. d.) Using an indifference curve analysis, illustrate on your graph in part (a) and ex- plain in as much detail as you can how and why John could be made better off. 2. (25 points) Suppose that John qualifies for a cash benefit of $20 per day but could earn $10 per hour working in a local Duncan Donuts. As an incentive to work, John is al- lowed to earn $10 per day before his cash benefit is reduced by $.50 for each dollar he earns. a.) Please draw a correctly labeled income-leisure graph plotting his cash benefit, wage rate (budget line), 16 hours of leisure and/or work, total income, and utility curve. b.) List the formula used and calculate the number of hours John can work and the in- come he can earn before his $20 benefit is eliminated. Please plot this line on the graph in part (a) and show the different slopes of the budget line, similar to what you did on the assignments. c.) Using an indifference curve analysis, illustrate on your graph in part (a) how John would be indifferent between not working at all and working until his $20 transfer is eliminated. d.) Using an indifference curve analysis, illustrate on your graph in part (a) and ex- plain in as much detail as you can how and why John could be made better off
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