1. For each of the following please illustrate the original and new budget constraints and then explain/show how each option is likely to affect the hours of work.
a. All doctors would be required to devote a percentage (for example, 10%) of their time "pro bono" to providing care for the poor (meaning they won't be paid for it).
b. Doctors must provide a certain number of hours of care (say 250 per year) for free to the poor
c. Doctors who earn over a certain amount (say over $250,000 per year) must donate $2,500 to a fund which will be used to provide care for the poor.
2. The current worker's compensation system pays employees who are permanently injured on the job a payment of $X per year, whether they work or not. The government has been considering an alternative plan (Plan B) where those who continue to not work receive half the amount ($.5X), but those who return to work would receive half the amount ($.5X) PLUS 50 cents for every hour worked. Of course this would be on top of the wages the employer pays them.
a. Illustrate the budget constraint represented by the current worker's compensation system.
b. Illustrate the budget constraint represented by Plan B
c. What would be the change in work incentives associated with this change in the way worker's compensation payments are calculated?