Question

Johnathan is an accountant who works for Reading Railroad Ltd, which is a public company. He earns $80,000 in wages during the 2022 year. His employer withheld $3,500 of CPP from his paycheques.

a. The correct amount of CPP withheld from Johnathan's wages is $3,500.
b. The correct amount of CPP withheld from Johnathan's wages is $4,000.
c. The correct amount of CPP withheld from Johnathan's wages is $4,500.
d. The correct amount of CPP withheld from Johnathan's wages cannot be determined from the information provided.

Answer 1

Jonathan, a single father, faces a decision on how many hours to work when considering how welfare benefits are reduced by earned income. Representing this through a labor-leisure diagram helps illustrate the trade-off between earning income and having leisure time. A change in government policy from a dollar-for-dollar reduction to a 30-cent reduction per dollar earned would affect this decision.

Step-by-step explanation:

The scenario presented is related to the effect of government benefits on the labor supply of an individual. Jonathan, a single father, needs to decide how many hours to work when each dollar earned reduces his welfare benefits by the same amount. This is a classic example of the income and substitution effects in labor economics, where individuals balance leisure against labor, considering potential trade-offs.

With the government's welfare policy, every $1 earned by Jonathan from work reduces his welfare benefits by $1. Therefore, at an hourly wage of $6, the government benefit reduction effectively makes his net wage rate lower. This scenario can be graphically represented using a labor-leisure diagram, which shows the trade-off between income earned from working and leisure time.

Should the government rework the policy so that for each dollar earned, the welfare benefit diminishes by only 30 cents instead of a dollar, Jonathan's opportunity cost of working decreases, potentially changing his decision on how many hours to work.

To construct a table showing Jonathan's options, we would list the hours of work, his earnings from that work, the government benefits he would receive, and his total income, which is the sum of earnings plus government support. The detailed table requires the specific information on the number of hours Jonathan plans to work and the restructured government welfare policy for an accurate representation. In the old system where benefits are reduced by a dollar for every dollar earned, Jonathan's salary effectively becomes $4.50 an hour when government support drops by half.