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Card 7 / 10:
Imagine that the government reworks the welfare policy that was affecting Jonathan in question 1, so that for each dollar someone like Jonathan earns at work, his government benefits diminish by only 30 cents. Reconstruct the table from question 1 to account for this change in policy. Draw Jonathan’s labor-leisure opportunity sets, both for before this welfare program is enacted and after it is enacted.
The following table shows a policy where only 30 cents in government support is pulled right back for every $1 of income earned. Jonathon’s labor-leisure diagram is shown in the figure following the table. “Opportunity set after program” extends from (0, $16,300) to (1,500, $10,000). “Opportunity set before program” slopes downward from (0, $9,000) to (1,500, $0). Number of Work Hours Earnings from Work Government Benefits Total Income 1,500 $9,000 $7,300 $16,300 1,200 $7,200 $7,840 $15,040 900 $5,400 $8,380 $13,780 600 $3,600 $8,920 $12,520 300 $1,800 $9,460 $22,260 0 $0 $10,000 $10,000
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