Question

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays 7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the accompanying table. What is the hourly wage John can earn from cleaning windows?

1) $2
2) $7
3) $14
4) Cannot be determined

Answer 1

Jonathan's options show that for every hour worked at a wage of $6, his welfare benefits reduce by the same amount, keeping his total income at $10,000 regardless of hours worked. A labor-leisure diagram would illustrate this relationship as a straight line, depicting the trade-off between labor and leisure as he transitions from welfare support to work income.

Step-by-step explanation:

Since Jonathan's welfare benefits decrease by $1 for every $1 earned from work, he faces an implicit 100% tax on his earnings. To maximize his total income, we must understand how working affects both his earnings and his government support. Assuming Jonathan can work up to 1,500 hours a year at $6 per hour, and he starts with $10,000 in welfare benefits without any income earned, here is a simple breakdown:

• Hours Worked: 0, Earnings: $0, Gov. Benefits: $10,000, Total Income: $10,000
• Hours Worked: 500, Earnings: $3,000, Gov. Benefits: $7,000, Total Income: $10,000
• Hours Worked: 1000, Earnings: $6,000, Gov. Benefits: $4,000, Total Income: $10,000
• Hours Worked: 1500, Earnings: $9,000, Gov. Benefits: $1,000, Total Income: $10,000

The labor-leisure diagram would depict a straight line from a point on the y-axis representing the $10,000 welfare without work, sloping downwards as he works more hours and the welfare benefits reduce.