Consider an individual who lives in an economy without a welfare program. They initially work T-L0hours per week, where (T-L0)>0. They earn an hourly wage (W) and no non-labour income. a) Draw a graph that reflects this individual’s income-leisure constraint, utility-maximizing indifference curve (U0), choice of leisure hours (L0) and income (Y0). b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Y0) and there is a

Consider an individual who lives in an economy without a welfare program. They initially work T-L0hours per week, where (T-L0)>0. They earn an hourly wage (W) and no non-labour income. a) Draw a graph that reflects this individual’s income-leisure constraint, utility-maximizing indifference curve (U0), choice of leisure hours (L0) and income (Y0). b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Y0) and there is a

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter7: Demand And Supply

Section7.1: Demand

Problem 4R

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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
What is two factors that may influence the shape of individuals’ indifference curves (flat or steep) which reflect their preferences for work or leisure? What is the difference between income effect and substitution effect under the basic work-leisure decision model?
On average, people sleep 8 hours per day meaning that each individual has 16 hours per day to allocate between labour and leisure. Assuming that the wage rate is $15 per hour and there are non-labor income is zero. The utility function of an individual is given by U(Y, L) = YL and for simplicity, the price index for real income is 1. a. Determine the budget constraint. b. Determine the marginal rate of substitution. c. What are the optimal labor and leisure hours? d. At the optimal relationship, what is the utility level for the individual?
Explain in detail Discuss the possible substitution effect and the income effect of an increase in income on leisure time.
Consider an individual who lives in an economy without a welfare program. They initially work T-Lo hours per week, where (T-Lo)>0. They earn an hourly wage (W) and no non-labour income. a) Draw a graph that reflects this individual's income- leisure constraint, utility-maximizing indifference curve (Uo), choice of leisure hours (Lo) and income (Yo). b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Yo) and there is a 50% clawback on any labour income earned. The individual now maximizes their utility by working and collecting a partial welfare benefit. On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing indifference curve (U₁), choice of leisure hours (L₁) and income (Y₁).
Refer to the following diagram. Point A is 24 hours, C is 14 hours, D is 8 hours, and E is 6 hours. Income B₂ 0 D -Leisure If the current wage rate results in a budget constraint of AB2, how many hours will the individual work?
Winona has 80 hours to divide between leisure and labor. Her utility function is u(r,c) = f(r) + c, when r represents hours of leisure,c represents dollars of consumption, and f is strictly concave. Winona’s wage is w0= $15/hr. initially, then it rises to w1= $20/hr. (i) Explain what happens to Winona’s labor supply when the wage rises,and why. (ii) Explain how the answer to (i) would change if Winona were to win a lottery.
An individual values both consumption and leisure. Suppose the individual has 1600 hours per week they can allocate between leisure and work. IF the individual works, they make a wage of $25 per hour. The individual's utility function is given as a function of leisure time, L and consumption, c: U(L, c) = L^(1/2)c ^ (1/2) a) Draw the individual's budget constraint for leisure and consumption. b) How much leisure time will the individual have when utility maximizing? c) Consider a Universal Basic Income policy like the one proposed by Andrew Yang that would give all individuals a lump -sum, unconditional cash transfer of $1,000 each month. How much leisure time will the individual have when utility maximizing with the cash transfer? d) Now suppose, instead of a cash transfer, a minimum wage of $40 per hour is implemented. How much leisure time will the individual have when utility maximizing with the cash transfer? e) What change in leisure time can be attributed to the substitution…
Consider an individual who had been planning to retire in five years. Unfortunately, they've just been laid off and the highest-paying job they've been able to find pays a lower hourly wage than did their previous job. a) Using the concepts of the income and/or substitution effect, describe why we might expect this individual to retire earlier than they originally planned. b) Using the concepts of the income and/or substitution effect, describe why we might expect this individual to retire later than they originally planned
Consider two individuals, Carole and Mo, who each have a job opportunity that pays a wage of $20 per hour and allows them to choose the number of hours per week they'd like to work. Carole has stronger preferences for leisure than Mo. Ultimately, both Carole and Mo choose to work more than zero hours per week. Draw (and upload) one graph that includes: • Carole and Mo's income-leisure constraint • Carole's utility-maximizing indifference curve (Uc) and choice of leisure hours (Lc) • Mo's utility-maximizing indifference curve (UM) and choice of leisure hours (LM) [Note: There are multiple, though similar, ways to draw this graph. Focus on ensuring that the constraint, indifference curves and hours worked align with the information provided above.]
Akua gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 110 hours. Her utility function is U (C, L) = C × L. Akua receives 660 GHS each week from her great-grandmother—regardless of how much she works. a. What will be Akua’s marginal rate of substitution. b. What will be Akua’s reservation wage? (Explain in detail)
Assume Lorena derives utility from consumption and leisure. Through the following utility function. U=VC-R where C is consumption and R is hours of leisure consumed per day (there are 24 hours in her day). Let w be the wage rate and H be the hours of work chosen. The price of consumption goods, C, is $1. In addition, assume Lorena has $M amount of non- wage income each day. Set up the utility maximizing Lagrangian needed to maximize utility subject to the budget constraint but do not solve for the demand for C and R. a b. Draw the consumer choice model for this situation (fully label the graph). Use it to graphically derive/describe/explain her labor supply function and explain what would be true for her labor supply to rise or fall when the wage rises (you may want to draw the graph twice. Measure and explain the loss in consumer surplus using the concept of compensating variation. g. h. What is the expenditure-price elasticity equation for y? That is, the elasticity for the % change…