Final answer:
Lawrence's retirement income setup is known as a pension plan, which provides him with 80% of his salary upon retirement. The example of a consultant who earns $200 per hour and buys vegetables instead of growing them demonstrates the concept of opportunity cost, where the value of time is maximized by working in a high-paying job rather than engaging in less profitable activities.
Step-by-step explanation:
The plan described for Lawrence, who is a full-time gardener at Chatterly House, Inc., where he will retire at 80% of his current $40,000 salary, is typically known as a pension plan. A pension plan is a type of retirement plan where an employer contributes funds to a pool of money that is set aside for the employee's future benefit. The funds are invested on the employee's behalf, and the employee receives benefits upon retirement.
In the example provided, Lawrence's employer makes annual contributions to ensure that Lawrence can retire comfortably with a predetermined income. This financial arrangement is an example of how employers can provide economic protection and security to their employees in their later years, much like the concept of Social Security, but typically tailored to a specific company or organization.
The situation of a consultant making $200 per hour who is not proficient at growing vegetables illustrates an economic principle known as opportunity cost. Since the consultant earns a substantial amount by working, spending time on a less efficient task such as growing vegetables would lead to a loss of potential income.
This is why it makes more economic sense for the consultant to work and purchase vegetables, rather than attempt to grow them. By maximizing the value of their time spent working and using their earnings to buy what they need, they are effectively utilizing their resources in the most efficient way possible.