Textbook Notes (363,521)
Canada (158,393)
Economics (479)
ECO100Y1 (80)
Chapter 3

Chapter 3

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University of Toronto St. George
Erik Gunderson

CHAPTER 3 To analyze the effect of specific programs on the income constraint, ask: i) What is the effect on non labour income? ii) What is the effect on the slope of the constraint that is, what happens as the individual gives up leisure and works more? Y = income after taxes and transfer payments E = labour market earnings = wages times hours worked Demogrant: a lump-sum transfer allocated to the worker regardless of his or her work effort or how many or few hours that he or she works (ie. Old Age Security) the demogrant would shift the potential income constraint vertically upward by the amount of the grant; the slope of the new income constraint would be equal to the slope of the original constraint since the relative price of leisure has not changed (price of leisure remains the same, no substitution effect) work incentives are unambiguously reduced leisure-inducing pure income effect Welfare program: a social program (also called socia
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