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PART LA. WELFARE AND THE LABORLEISURE MODEL (30 points) Morgan, 3 single dad, has 40 hours per week to devote to work (h) or leisure
PART LA. WELFARE AND THE LABORLEISURE MODEL (30 points) Morgan, 3 single dad, has 40 hours per week to devote to work (h) or leisure (L). If he works for pay, he earns $25 per hour but he has to pay $15 per hour in childcare. He receives $300 per week in child support from his ex and qualies for welfare benets of $200 per week unless his total income (including welfare benets) reaches $800 per week (call this the benet cutoff), at which point his welfare benets fall by $1 for every additional dollar he earns. With his income, he purchases market goods (M) at a price of $1 for every M. 1. Plot Morgan's budget constraint with and without childcare costs. Make sure to label the important points on his budget constraint including the slopes and all kinks. (5 points) 2. Suppose his preferences dictate (this is the point on the budget constraint that intersects the highest possible indifference curve) that he chooses to work 12 hours. How much will he consume in M per week? How much would he consume in leisure? (5 points) 3. What does the labor-leisure model say about how Morgan's consumption, leisure and labor supply would change if (a) his ex-wife changes jobs and child support payments fell to $100 per week? (5 points) (b) welfare benets increased to $300 per week and the benet cutoff to $825? (5 points) 4. What does the labor-leisure model say about how Morgan's consumption, leisure and labor supply would change if (a) his parents decide to help out by providing free childcare? (5 points) (b) his \"leisure\"time studying means he gets a promotion at work and his hourly wage rate increases to $50 per hour? (5 points)
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