Cash Benefits and Labor Supply Suppose Wesley, the DJ from the previous problem
ID: 1194306 • Letter: C
Question
Cash Benefits and Labor Supply
Suppose Wesley, the DJ from the previous problem set, has fallen on hard times. In Washington, where Wesley lives, a TANF recipient can earn $225 per month without having benefits reduced. After $225, each dollar earned reduces benefits by $0.50. Wesley can earn $10 an hour busing tables at the local Pancake House. If he doesn’t work at all, he is eligible for $645 in TANF benefits. Assume that Wesley has a time endowment of 720 hours.
a) If Wesley works 10 hours, how much are his earnings, his welfare benefit and his total income?
b) After working a certain number of hours, Wesley’s benefit will be reduced to zero. What is this number of hours?
c) Plot Wesley’s budget constraint (in terms of hours of leisure and dollars of total income.)
d) Sketch a set of indifference curves consistent with Wesley participating in the labor market.
Explanation / Answer
his total earnings are $100
the number of working hours are 10 hours only