Workers can work anywhere from 0 to 2,000 hours per year at a wage of $8/hour.
a. Graph this budget constraint, with hours worked on the x-axis and income on the y-axis.
b. The government introduces a new welfare program with a guarantee of $2,000 and a break- even point of $6,000. Graph the new budget constraint. What is the phase-out rate?
c. Is this new program likely to encourage more work, discourage work, or will its effect be mixed on different workers? Why?