7. Consider a generic consumption/leisure choice. How will the following events/policies affect either the consumer's choice of hours workedand labor supply, if at all? Be specific as possible about income andsubstitution effects and if there are multiple cases, consider them all(a) A raise in the wage rate(b) A labor income tax on all income.(c) A labor income tax on all labor income beyond the first 20 hours.

There is a trade off between leisure and consumption for a person.

Answered: 7. Consider a generic…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1. What is the relationship between working hours and wage levels? (A). An increase in the wage rate increases working hours if the substitution effect dominates the income effect. (B). An increase in the wage rate reduces the hours worked if the dominating effect is a substitution effect. (C). A decrease in the wage rate increases working hours if the substitution effect dominates the income effect. (D). Answers (A) and (B) are correct. (E). Answers (A) and (C) are correct.
Income $240 $192 0 15 16 17 a) Using the above diagram, decompose the effect of a wage decrease for this individual into Income Effect (IE) and Substitution Effect (SE). Leisure 24 b) How many hours of work is effected because of the IE? c) How many hours of work is effected because of the SE? d) What is the net effect of this wage decrease on hours of work for this individual?
Helping America’s seniors. Suppose that the government proposes eliminating any tax on earnings from work which are less than $20,000 for Americans at least 62 years old. Seniors earning more than this threshold would still be subject to the normal income tax rates on higher earnings. a. Sketch a budget constraint in the leisure-income diagram consistent with this proposal. b. If the proposal were adopted, what do you predict would happen to the labor supply of seniors? Explain.
4. 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 fis strictly concave. Winona's wage is wo = $15/hr. initially, then it rises to wi = $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.
There are two consumers, Cindy and Shelly. Cindy’s marginal rate of substitution equals C/L.Shelly’s marginal rate of substitution equals (C – 200)/(L – 80). Assume that each personchooses not to work and that there are 168 hours in a given week. Since Cindy and Shelly arenot working, they qualify for welfare. Assume each individual earns $630 in welfare paymentseach week whether they work or not.(a) Given these numbers, calculate each person’s MRS. Show your work.(b) Using your answer from part (a), graph Cindy’s and Shelly’s indifference curves onthe same set of axes. Label everything.(c) Assume Cindy and Shelly are each offered a job, and they each could earn the samereal wage. Given your answer from part (a), who is more likely to take the job andwhy?
5. Rhoda’s preferences for consumption and leisure can be expressed as U(C, L) = (C - 100) × (L - 40). There are 110 (non-sleeping) hours in the week available to split between work and leisure. Rhoda earns 10 GHS per hour after taxes. She also receives 320 GHS worth of support from her parents each week regardless of how much she works.a. What will be Rhoda’s marginal utility of leisure and her marginal utility of consumption?b. What is Rhoda’s marginal rate of substitution when L = 100 and she is on her budget line?c. Find Rhoda’s optimal amount of consumption
5. Rhoda’s preferences for consumption and leisure can be expressed as U(C, L) = (C - 100) × (L - 40). There are 110 (non-sleeping) hours in the week available to split between work and leisure. Rhoda earns 10 GHS per hour after taxes. She also receives 320 GHS worth of support from her parents each week regardless of how much she works.a. What will be Rhoda’s marginal utility of leisure and her marginal utility of consumption?b. What is Rhoda’s marginal rate of substitution when L = 100 and she is on her budget line? c. Find Rhoda’s optimal amount of consumption.
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…
QUESTION 5 Suppose that a consumer faces a wage increase. Which picture best represents the change in their budget constraint? Consumption leisure Consumption leisure Consumption leisure Consumption leisure
There are several factors that have influenced the importance of purchasing andsupply”. Justify this statement by discussing information technology as a major factor.Provide an example of your choice to explain the factor.
cook -int ences a) Chika has calculated the marginal utility that she derives from her paid employment and from leisure. This is presented in table below. In her ideal world, where she could work as few or as many hours as she wished, how would she allocate her sixteen waking hours? (She does need to sleep.) Hours 1 2 3 4 5 6 7 8 9 10 MU Paid Employment 80 75 70 65 60 55 50 45 40 35 MU Leisure 120 110 100 90 80 70 60 50 40 30 9 hours working and 40 hours leisure. b) Unfortunately, Chika begins to realize that unless she gets an education she will not enjoy a high salary and therefore, will not be able to afford more leisure time. She therefore decides to spend six hours each day studying (in addition to her eight hours of sleep). How will she now divide the remaining hours between work and leisure?! hours working and hours leisure. Help Save C
CHAPTER 6 Household Behavior and Consumer Choice 127 E 8. Decide whether you agree or disagree with each of the following statements and explain your reason: a. If the income effect of a wage change dominates the substitu- tion effect for a given household and the household works longer hours following a wage change, wages must have risen. b. In product markets, when a price falls, the substitution effect leads to more consumption; but for normal goods, the income effect leads to less consumption. 9. Suppose the price of X is $5 and the price of Y is $10 and a hypo- thetical household has $500 to spend per month on goods X and Y. a. Sketch the household budget constraint. b. Assume that the household splits its income equally between X and Y. Show where the household ends up on the budget constraint. c. Suppose the household income doubles to $1,000. Sketch the new budget constraint facing the household. d. Suppose after the change the household spends $200 on Y and $800 on X. Does…

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