Draw in a unique diagram the pre-subsidy budget line

Reference no: EM132198887

Question: Frank is a single-father with one child. The cost of child-care is equivalent to $150 per day. When Frank works, he receives an hourly wage of $20. In addition he has S150 of non-labor income per day. He sleeps 8 hours a day. Given these constraints, Frank chooses not to work.

(a) Suppose now that the porermnest wants to puarsante a $100 daily income lesel fer single-parents who work (i.e., the government subsidizes the gap between $100 and the daily earnings). Draw in a unique diagram (clearly labeled) the pre-subsidy and the post-subsidy budget line faced by Frank. Will he be more likely to work after the introduction of the subsidy?

(b) What if the $100 subsidy is phased out linearly so that the value of the subsidy is S100 if earned income is SO, and it is equal to S0 when earned income is equal to $250? Draw in a unique diagram (clearly labeled) the pre-subsidy and the post-subsidy budget line faced by Frank. Will he be more likely to work after the introduction of the subsidy?

Reference no: EM132198887

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