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A 65-year-old considers retirement. She has no private savings, but she's paid payroll taxes and so qualifies for social security. a. Assume there is no
A 65-year-old considers retirement. She has no private savings, but she's paid payroll taxes and so qualifies for social security.
a. Assume there is no retirement pension or social security check coming. Draw a diagram with consumption on the y-axis and leisure on the x-axis with a budget constraint and a
convex (slope flattening as x increases) indifference curve. Explain how she's more likely to go part time (or work full time) than to retire. Hint: Is her consumption positive? How does she afford this?
- Now suppose there is a social security check coming but only if she retires - that is, she receives a baseline level of income for consumption if her labor income is zero. Show her new budget constraint on a new diagram. Show two possible indifference curves - one where she continues to work full time, and another where she retires.
- For the case in part (b), explain why she won't work part time (i.e., she'll either work a lot or not at all)
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