Question

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.

Short answer

Amount of hours worked	Earnings from Work ($6 x Amount of hours worked)	Government Support	Total Income (Earnings from work + Government support)
0	0	$10,000	$10,000
500	$3,000	$9,100	$12,100
1000	$6,000	8,200	$14,200
1500	$9,000	$7,300	$16,300

Step-by-step solution

Step 1. Given information

Jonathon is a single father with one child. He can work as a server for $6 per hour for up to 1,500 hours per year. He is eligible for welfare, and so if he does not earn any income, he will receive a total of $10,000 per year. He can work and still receive government benefits, but for every $1 of income, his government benefits diminish by only 30 cents.

Step 2. Solution

Amount of hours worked	Earnings from Work ($6 x Amount of hours worked)	Government Support (reduces by 30 cents)	Total Income (Earnings from work + Government support)
0	0	$10,000	$10,000
500	$3,000	$9,100	$12,100
1000	$6,000	8,200	$14,200
1500	$9,000	$7,300	$16,300

Step 3. Labor-leisure diagram ofJonathan’s opportunity set with and without government support