In 1981 Andrew Carnegie asserted that “parents who leave their children enormous wealth generally deaden their children’s talents and energies and tempt them to lead less productive lives.”
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a. Evaluate this statement using the labor-leisure model and explain the effects of such inheritances (I) on hours of work and leisure.
b. Some parents may link the inheritances to the actual amount earned by their children in the labor market That is, the children can claim the inheritance only if their labor earnings exceed $50,000 per year. However, if their labor compensation is more than $150,000 per year the inheritance will be given to charity. Draw the budget constraint under the earnings-conditioned inheritance (scenario II) Assume that the non-labor income is at $5,000. Also, indicate the inheritance amount as I
c. Now assume that the parents interested in the amount of time their children spend in the labor are market. Under this scenario, the children will receive double the market wage rate if they work up to 25 hours per week, a hundred times the market wage if they work between 25 hours and 30 hours, 75 times the market wage if they work between 30 and 45 hours per week, and only the market wage for any additional hour worked. Draw the budget constraint under the hours-of-work-conditioned inheritance (scenario III). Again assume that the non-labor income is at $5,000 and indicate the inheritance amount as I
d. Compare the well-being of the children when there is no inheritance whatsoever (scenario I) and under the two alternative scenarios (scenario II, scenario III). Are the children better off? Are any children worse off? Explain Note: For all the previous parts (a)-(d) assume that there is both a labor and a non-labor income component. Get Economics homework help today