# Analyze the impact of the cash grant on Mary’s choice of optimal bundle graphically

Analyze the impact of the cash grant on Mary’s choice of optimal bundle graphically

Mary has two sources of income, let her non – labor income be represented by V dollars per year. He r labor income comes from working h hours per year in the labor market at wage rate of w per hour. Assume that her utility is a function of composite good, C (measured in dollars and priced at \$1) and hours of leisure consumed, L (priced at w per hour). As sume her wage rate per hour is \$10, her time endowment is up to 2000 hours per year and her non – labor income V is \$3000. Below is her specific Utility Function. U = 100*Ln(C) + 125* Ln (L) A. Determine her specific budget constraint equation. Also graphic ally illustrate her budget constraint with C on the y – axis and hours of leisure consumed, L, on the x – axis. Clearly label everything including the intercepts, x – and y – axis and the slope of the budget line. B. Now solve for the optimal consumption bundle for Mary and identify the optimal values for C (C*) and L (L*). C. At the optimum, determine her level of utility. D. Now assume, the government decides that Mary qualifies for a cash grant welfare program where s he would be entitled to \$3000 per year. What would this cash grant do to her non – labor income V? How would V and w change? Illustrate the impact of the cash grant on Mary’s choice of optimal bundle graphically. At her new optimum, what would happen to her hours of leisure consumed?

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