Contemporary Labor Economics
11th Edition
ISBN: 9781259290602
Author: Campbell R. McConnell, Stanley L. Brue, David Macpherson
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 2QS
To determine
The difference between Becker’s model of the allocation of time and the simple work–leisure choice model.
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Students have asked these similar questions
Consider the following labor-leisure choice model.
Utility function over consumption (C) and leisure (L)
U(C.L) = (1/3L1/3
Total hours: H = 40
Labor hours: NS = H - L
Non-labor income: π = 30
Lumpsum tax: T = 10
Hourly wage: w = 4
Suppose the hourly wage changes to w = 3. What is the substitution effect of this change on labor supply?
A. +2.65
B. -2.65
C. +3.48
D.-3.48
E. None of the above
Consider the following Labour-Leisure Choice model.
Utility function over consumption (C) and leisure (L)
1 3
U(CL) = cL4
Total hours H = 20
Labour hours: N = H-L
Non-labour income: 1 = 20
Lump-sum tax T= 10
Hourly wage w = 3
Suppose that the hourly wage increases to 5 What is the substitution effect of this wage change on labour supply(N)?
A. -1.10
B. -2.10
O C. +1.10
OD. +2. 10
O E. None of the above
Explain in detail
Discuss the possible substitution effect and the income effect of an increase in income on leisure time.
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Similar questions
- An individual's decision to supply her labor or to spend her time in leisure activity is known as the labor-leisure tradeoff. True or false?arrow_forwardTrue or False 1. If leisure and consumption are normal goods, the labor supply curve is more likely to be backward bending when the consumer views leisure and consumption to be more substitutable for one another.arrow_forwardUsing indifference curve analysis, show the effects of an increase in the hourly wage rate on labor supply (hours of work) and earnings. Identify the income and substitution effects.arrow_forward
- 2. Let an individual’s utility function be given by where C and L are consumption and leisure respectively, and g, a and b are positive constants with a + b = 1. Derive the individual’s Marshallian labor supply function and comment on the magnitudes of the income and substitution effects of wage change. Derive the general form of Slutsky equation of labor supply.arrow_forwardIf 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.arrow_forwardWhen focusing on a married couple, one person’s non-labor income includes the laborearnings of his/her partner. Using a graph of budget constraints and indifference curves,describe what would happen to the labor supply of one spouse if the other experiences aninvoluntary job loss. Your answer does not depend on whether the spouse you’regraphing is initially supplying labor or not.arrow_forward
- The lines on the graph are budget constraints, showing the tradeoff between labor and leisure. Suppose that when the wage changes, an individual chooses to move from point A to another point on the graph. For each of the other points, where would it belong on the backward bending labor supply curve? Backward‑bendingportionVerticalportionUpward‑slopingportion Answer Bank B D F C Earrow_forwardSuppose John has 24 hours in a day. He can spend his time either working at his job where he earns $20 per hour, or he could spend it doing leisure (everything else, including sleeping). a) Using the labor-leisure choice model, draw a graph that shows his optimum labor supply would be 10 hours a day (with $0 non-labor income). Make sure your graph is completely labeled. b) On the same graph, show what would happen if he receives $100 a day in non-labor income. Breifly explainarrow_forwardConsider the following labor-leisure choice model. U(C,L) = C^2/3L^1/3 C = wN + π – T H= N+ L Where C: consumptionL: leisureN: hours workedH = 50 : total hoursw = 4 : hourly wageπ = 20 : non-labor income T = 10 : lump-sum tax Suppose the hourly wage changes to w = 5. Perform a decomposition and fill in the table C L N Substitution Effect Income Effect Total Effectarrow_forward
- Suppose John has 24 hours in a day. He can spend his time either working at his job where he earns $20 per hour, or he could spend it doing leisure (everything else, including sleeping). a) Using the labor-leisure choice model, draw a graph that shows his optimum labor supply would be 10 hours a day (with $0 non-labor income). Make sure your graph is completely labeled. b) On the same graph, show what would happen if he receives $100 a day in non-labor income. Breifly explain what is happening in words.arrow_forwardConsider the standard labor-leisure choice model. Consumer gets utility from consumption (C) and leisure (L). She has H total hours. She works NS hours and receives the hourly wage, w. She has some non-labor income T and pays lump-sum tax T. Further suppose (n-T)>0. The shape of utility function is downward-sloping and bowed-in towards the origin (the standard U-shaped case just like a cobb-douglas function) If this consumer decides to NOT WORK AT ALL, then it must be the case that O A. MUL = MUC O B. MRSL,CI 2 w OC. IMRSL,CIs w O D. MRSL,C = w O E. None of abovearrow_forwardHumanity is faced with a tough choice, work or leisure. Within the theory of consumer behaviour, apply the labour-leisure choice model to explain what happens when there are two (2) consecutive increases in the wage rate of a an individual and use that to derive the individual's 1.labour supply curve 2.demand for leisure curvearrow_forward
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