Alternative B is for reforming the disability system is to maintain the old benefit levels (for those who receive them) but allow workers to earn up to $300 a month and still keep their benefits. Those who earn over $300 per month would lose all DI benefits.
a) Draw the original budget constraint and the budget constraint under alternative B.
b) Can this program increase labor supply? Explain how it possible or impossible. If possible show how graphically.
c) Can this program have no effect on labor supply? If yes show how graphically.
d) Can this program decrease labor supply? (Hint some current workers are eligible for DI but choose to work instead) Explain how it possible or impossible. If possible show how graphically.