Determine whether the following statements are true, false, or uncertain. Please illustrate and explain your answer. If leisure is a normal good, then an individual's labor supply curve must be positively sloped. If leisure is an inferior good, then an individual's labor supply curve must be negatively sloped.
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Determine whether the following statements are true, false, or uncertain. Please illustrate and explain your answer.
If leisure is a normal good, then an individual's labor supply curve must be positively sloped.
If leisure is an inferior good, then an individual's labor supply curve must be negatively sloped.
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- 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…Mac can trade off leisure for income. The rate at which he can do so is given by the wage rate. Mac is endowed with 24 hours per day. (a) Assume that leisure is a normal good. Construct Mac’s labor supply curve from an indifference curve/budget constraint mapping. (b) Now assume leisure is an inferior good. Construct Mac’s labor supply curve from an indifference curve/budget constraint mapping.Jack's marginal utility of consumption is MUc = L - 6, and the marginal utility of leisure is MUL=C-40. Jack does not have any nonlabor income, i.e., V = 0. Jack faces a $48 an hour wage rate. Jack's total number of hours available per week is 150. What is Jack's optimal choice of consumption? (calculate to 2 decimal places)
- Suppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living increase. Is this response predominantly an income effect or a substitution effect? Explain.Suppose that the cost of living increases, thereby reducing the purchasing power of your income. If your money wage doesn’t increase, you may work more hours because of this cost-of-living increase. Is this response predominantly an income effect or a substitution effect? Explain. with simple exampleNora's utility function is given by U = In(C) + In(L), where U is utility, C is consumption, and L is leisure. The total time Nora has is T = 1 and is a utility maximizer. Before the Covic pandemic, the wage rate is 10, and Nora has no non-labor income. When the pandemic hit and part of the economy was locked down, Nora's wage rate decreased to 8. However, the government provided income support by sending out a non-labor income of 5 to everyone, including Nora. Nora still has a total amount of time T = 1 for leisure and work during the pandemic. Which of the following statements is correct? O Before the pandemic, Nora's labor supply is 0.2. O Before the pandemic, Nora spent time equal to 0.2 O Before the pandemic, Nora's consumption was 9. O During the pandemic, Nora's labor supply is 0.5. leisure. O During the pandemic, Nora was better off for having a higher utility level. O During the pandemic, Nora's labor supply is unchanged becauses income effects were perfectly offset by the…
- John works in a shoe factory. He can work as many hours per day as he wishes at a wage rate w. Let C be the amount of dollars he spends on consumer goods and R. be the number of hours of leisure that he chooses. John's preferences are represented by U(C, R) = CR utility function Question 2 Part a John earns $8 an hour and has 18 hours per day to devote to labor or leisure, and he has $16 of nonlabor income per day. Draw John's indifference curves, budget constraints and solve for his optimal consumption and leisure choices.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…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.
- Consider an indifference curve for someone deciding how to allocate time between work (and thus consumption) and leisure. Suppose the wage increases. The substitution effect induces a person to work and consume (more , less) ? in response to higher wages. If consumption is a normal good, the income effect induces the person to consume ( more, less) ? when the wage rises, but if consumption is an inferior good, the income effect induces the person to consume ( more , less) ? in response to higher wages. True or False: The person's consumption may fall as a result of the higher wage if consumption is an inferior good. True or FalseWinona 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.Consider a consumer who could earn $400 per week and has 50 weeks available each year to allocate between work (H) and nonmarket time (L). They have no non-labour income. Their utility function is U = C2L , where C is the value of consumption goods. What is their optimal choice for the number of weeks in nonmarket time and consumption? Show this in a diagram. Suppose the government introduces a policy that (i) offers no benefits to people who do not work, (ii) offers a wage subsidy on earnings at a rate of 25%, with a maximum benefit of $5000, and (iii) the benefit is subject to reduction at a rate of 25% for every dollar earned above $20,000 in the year. Show the person’s new budget constraint in a new diagram, and discuss how the person’s optimal choice might change (you do not have to calculate this, but point to where it is likely on the new budget constraint). Discuss how income and substitution effects play a role.