Andrew Yang was a 2020 Democratic primary election candidate. His main agenda pillars were Medicare for All, Human-Centered Capitalism, and Freedom Dividend. The latter is a universal basic income of $1000/month, free and clear for every American adult. Let's analyze this by using the time allocation choice model.
Assume that a poor 1-person household has no passive income. If we subtract time for sleeping, eating, personal hygiene, etc., that person has 400 hours per month available as total time T, which he can split between Home Time and Labor Time. Moreover, assume that the person has a net income of $8/hour from his job. For this question, assume that all taxes are 0%.
a) Draw the budget constraint of this household in a time allocation choice model graph with time on the x-axis and consumption on the y-axis. Assume hereby that there is NO basic income and that the person has also no other forms of passive income. Label all axes, lines or curves, and write on each axis the values of all ends and kinks (if applicable) of the budget constraint.
b) Assume that in the situation described in part a, the person chooses to work 250 hours per month. Draw an indifference curve going through his utility maximizing work time of 250 hours/month and home time of 150 hours/month. Calculate his income at this level.
c) Now assume that the Freedom Dividend is introduced, thus each person receives a tax-free basic income of $1000 monthly, independent of their income. Draw the new budget constraint of this household. Again, write on each axis the values of all ends and kinks (if applicable) of the budget constraint, and label all axes, lines or curves.
d) How (if any) does the time allocation of this person change between Home Time and Labor Time? By how much do you think his monthly income rises after the Freedom Dividend: less than $1000, $1000, or more than $1000? In the graph of part c, draw a possible indifference curve for the household which shows his new time/income allocation after the introduction of the basic income.
