Problem 1 Choice Sets and Budget Lines I
(a) Graphically illustrate the choice set and budget constraint for a worker who can earn $10 per hour and can devote 80 hours per week to leisure and work. Put $ of consumption per week on the y-axis and leisure hours on the horizontal axis. Clearly label the opportunity cost of leisure, the budget line, and choice set.
(b) If the worker described in part a were to win the lottery and it pays her 500 per week, graphically illustrate the new and old budget lines in the same space. Clearly label the opportunity cost of leisure and the new and old budgets.
(c) If the worker described in part a were to get a raise of $20 per hour, so her wage is $30 per hour, graphically illustrate the new and old budget lines in the same space. Clearly label the opportunity cost of leisure and the new and old budgets.
(d) Suppose the government adopts a welfare program that awards a maximum benefit of $300 per week and has a benefit reduction rate of 1. A benefit reduction rate of 1 means that for every dollar the worker earns on the job, the government cuts the worker's welfare benefit by 1 dollar.
Illustrate how the welfare program affects the worker's budget line.

Problem 2 Choice Sets and Budget Lines II
(a) Graphically illustrate a consumers budget line and choice set for dollars of food consumption and dollars of nonfood items if the consumer has $100 of income. Put dollars of food consumption on the vertical axis and dollars of nonfood items on the horizontal axis.
(b) Illustrate graphically how the consumer's budget line and choice set changes if he or she is given $100 of food stamps. Food stamps can only be used to purchase food items.
(c) Now indicate the consumer's budget line if the government were to give the consumer $100 in cash instead of food stamps.
(d) how does the consumer's budget under the food stamp program differ from the budget under the cash transfer?

Problem 1 Choice Sets and Budget Lines I (a) Graphically illustrat...