For this question, assume that indifference curves are strictly convex, consumption and leisure are normal goods, and the optimal amounts of consumption, leisure, and labor are always positive. A wage increase ______. (SE = substitution effect; IE = income effect) (a) increases labor supply via the SE and decreases labor supply via the IE (b) decreases labor supply via the SE and decreases labor supply via the IE (c) increases labor supply via the SE and increases labor supply via the IE (d) decreases labor supply via the SE and increases labor supply via the IE (e) Can’t tell without knowing the utility fu

For this question, assume that indifference curves are strictly convex, consumption and leisure are normal goods, and the optimal amounts of consumption, leisure, and labor are always positive. A wage increase ______. (SE = substitution effect; IE = income effect) (a) increases labor supply via the SE and decreases labor supply via the IE (b) decreases labor supply via the SE and decreases labor supply via the IE (c) increases labor supply via the SE and increases labor supply via the IE (d) decreases labor supply via the SE and increases labor supply via the IE (e) Can’t tell without knowing the utility fu

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.11P

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A worker earns £15 pounds an hour and chooses to work six hours a day. The worker has noother source of income. For the question below, assume that the worker has “standard” Cobb-Douglas preferences. When considering wage changes, assume that the “income effect”outweighs the “substitution effect”. (a) Write down the worker’s budget constraint and then represent the worker’schoice in a suitably labelled graph. (b) The government gives the worker £80, but taxes the worker’s wage, such thattheir take-home wage is £10. Model this policy in a suitably labelled graph. Isthe worker better off (in terms of utility) after this policy? Note –there are arange of correct answers for the worker’s new hours/income. Choose one thatis consistent with the information given in the question.
b. i. Explain the concept of Marginal Rate of Substitution (MRS) as an important tool of indifference curve analysis of demand
Suppose that a person has 2000 hours to allocate each year between leisure and work. a. Derive the equation of his budget constraint given an hourly wage of $(15)/hour. b) Graph his budget constraint line based on the equation you derived in part a. (Consumption (C) on the vertical axis and leisure (L) on the horizontal axis). Please make sure to include the value for the vertical and horizontal intercepts. c) Now suppose that the local government introduces an income guarantee program for single parents in which the income transfer is $10,000 per year if an individual does not work during that year (this dollar amount represents the benefit guarantee). If the individual decides to work, this transfer program imposes a 100% benefit reduction rate (e. g.. each additional hourly wage earned is reduced by 100%). Derive the new budget constraint equation that corresponds to this scenario. d) Draw the budget line that corresponds to the new scenario on a new graph. (Consumption (C) on the…
Consider a worker whose choice is between hours of free time and consumption. His company has now cut his wage rate. Which of the following statements is correct? O As a result of the substitution effect, the worker would reduce his free time. The income effect means that the worker would increase his free time. The worker may or may not reduce his free time as a result of the wage cut. The income effect will always dominate the substitution effect of the wage cut.
How is utility maximization obtained in the competitive factor market? Explain your answer. b. Explain, why are goods not distributed efficiently among consumers if the marginal rate of technical substitution is not equal to the marginal rate of substitution of consumers?
If the consumer's non-labor income increases while wages remain unchanged, what will happen to the budget line? A) The budget line shifts inward without a change in slope. B) The budget line rotates inward from the intercept on the horizontal axis. C) The budget line rotates outward from the intercept on the vertical axis. D) The budget line shifts outward without a change in slope. An optimum labor-leisure that occurs as a corner solution A) can be an equilibrium in the aggregate economy. B) includes the consumption of only one good. C) cannot exhaust the budget constraint. D) includes the exact same amounts of each good. ) If a firm is a price taker in both the labor market and the output market, it will A) hire labor until the marginal product of labor equals the output price. B) hire labor until the marginal product of labor equals zero. C) earn zero economic profit in the short run. D) hire labor until the marginal product of labor equals the wage rate.
Choose one of the answers from the five choices provided. And please, also provide a brief description, explanation or argument for your choice. Thank you Bartleby! 3. Assuming that consumption and leisure are normal goods, working hours will decrease when wages increase if: (A). The income effect dominates the substitution effect.(B). The substitution effect dominates the income effect.(C). If the income and substitution effects move in the same direction (for example, if both have the same sign).(D). If the income effect and the substitution effect move in opposite directions (for example, if they have different signs).(E). The increase in wages is accompanied by an increase in prices.
Define The income and substitution effects.
Suppose that the owner of Boyer Construction is feeling the pinch of incrs associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)
Hannah’s wage rate is initially $10 per hour and she maximises her utility by supplying 8hours of work. Subsequently, her wage rate increases to $15 per hour and her newequilibrium position corresponds to 9 hours of work. It is noted that the income effect (IE)causes the labour supply to change by 1 hour and the substitution effect (SE) causes thelabour supply to change by 2 hours. How to draw in diagram, to show the IE and SE?
1) Sharon spends her time (20h) between leisure (L) and work and he consume Y product from his working income (Py=1). Assume that she gets W$ per hour of working and has the following utility function: U (L, Y)=LY+2L a. b. C. Calculate the demand function for L and show it on a graph (L vs W). Calculate the labor supply (H) and show it on a graph (H vs W). What will happen to L, Y and H if the wage per hour (W) will decrease? =
a) If Kyeiwaa has GhC 50 of non-labor income per week, and she faces a market wage rate of GhC 5 per hour; and has 110 hours of nonsleeping hours to allocate between work and leisure activities (assuming she sleeps roughly 8hours per day) b) Write down the budget equation for Kyeiwaa c) Graph Kyeiwaa 's budget line. d) Assuming leisure is a normal good (with the aid of a graph), describe what will happen to Kyeiwaa 's hours of work if her non-labour income increases. e) If Kyeiwaa 's substitution effect dominates her income effect, with the aid of a diagram describe what will happen to her hours of work when her wage increases.