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Food Consumption (Dollars) : (1,655 Hours, $4,725)

The document contains two figures showing how two mothers, Sarah and Naomi, allocate their consumption and leisure time based on different levels of welfare benefits. Figure 2-10 shows that when Sarah's benefits are $5,000 she chooses 1,910 hours of leisure and $5,450 of consumption, but when benefits fall to $3,000 she reduces her leisure to 1,655 hours and consumption to $4,725. Figure 2-11 shows that Naomi, who values leisure more than Sarah, chooses 2,000 hours of leisure regardless of whether her benefits are $5,000 or $3,000, only reducing her consumption from $5,000 to $3,000 when benefits decrease.

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54 views1 page

Food Consumption (Dollars) : (1,655 Hours, $4,725)

The document contains two figures showing how two mothers, Sarah and Naomi, allocate their consumption and leisure time based on different levels of welfare benefits. Figure 2-10 shows that when Sarah's benefits are $5,000 she chooses 1,910 hours of leisure and $5,450 of consumption, but when benefits fall to $3,000 she reduces her leisure to 1,655 hours and consumption to $4,725. Figure 2-11 shows that Naomi, who values leisure more than Sarah, chooses 2,000 hours of leisure regardless of whether her benefits are $5,000 or $3,000, only reducing her consumption from $5,000 to $3,000 when benefits decrease.

Uploaded by

penelopegerhard
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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42 PA R T I INTRODUCTION AND BACKGROUND

FIGURE 2-10
Food
consumption Utility Maximization for
(dollars)
Sarah When the TANF guaran-
$20,000 tee is $5,000, the optimal
choice for Sarah is to take
1,910 hours of leisure and con-
(1,655 hours, sume $5,450 (at point A). When
$4,725) the guarantee falls to $3,000,
(1,910 hours,
she reduces her leisure to
$5,450)
1,655 hours, and her consump-
10,000 tion falls to $4,725 (at point B).

6,000 A
5,000
B

3,000

0 1,000 1,400 2,000 Leisure (hours)

FIGURE 2-11

Food
consumption Utility Maximization for
(dollars) Naomi Because Naomi val-
$20,000 ues leisure more highly relative
to consumption than Sarah in
Figure 2-10, she chooses
2,000 hours of leisure regard-
(2,000 hours, less of the TANF guarantee. The
$5,000) reduction in guarantee therefore
lowers Naomis consumption
10,000 (2,000 hours, from $5,000 (at point A) to
$3,000) $3,000 (at point B).

6,000 A
5,000

3,000 B

0 1,000 1,400 2,000 Leisure (hours)

The first mother, Sarah, has a utility function of the form U 100 ln(C)
175 ln(L), where C is consumption, L is leisure, and ln is the natural log-
arithmic function. Sarah values both consumption and leisure, but she values
leisure somewhat more. Figure 2-10 shows her indifference curves and budget
constraint. When the guarantee is $5,000, Sarah chooses to consume 1,910

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