Consider an income guarantee program with an income guarantee of $6,000 and a benefit reduction of 50%. A person can work up to 2,000 hours per year at $8 per hour.
a. Draw the person’s budget constraint without the income guarantee. Fully label the graph.
b. Draw the person’s budget constraint with the income guarantee. Fully label the graph.
c. Suppose the income guarantee rises to $9,000 but with a 75% reduction rate. Draw the new budget constraint. Fully label the graph.