LO 2, 4 Suppose that a consumer can earn a higher wage rate for working overtime. That is, for the first q hours the consumer works, he or she receives a real wage rate of w1, and for hours worked more than q he or she receives w2, where w2 > w1. Suppose that the consumer pays no taxes and receives no nonwage income, and he or she is free to choose hours of work. a. Draw the consumer's budget constraint, and show his or her optimal choice of consumption and leisure. b. Show that the consumer would never work q hours, or anything very close to q hours. Explain the intuition behind this. c. Determine what happens if the overtime wage rate wz increases. Explain your results in terms of income and substitution effects. You must consider the case of a worker who initially works overtime, and a worker who initially does not work overtime.

00 LO %24 WAGE 7. Shifts in labor supply Assume that the consulting and information technology industries employ people with similar skills. Suppose an increase in the demand for computer analysts leads to a rise in their wages, while the demand for consultants remains the same. The following graph shows the labor market for consultants in the United States. Show the effect of the rise in demand for computer analysts on the U.S. labor market for consultants by shifting the labor demand curve, the labor supply curve, or both. Supply Demand Supply Demand LABOR MacBook Pro * > %23 3. 4. R. A S K ב B.

Productivity is defined as O 1) output per person. O 2) output per unit of capital. 3) output per unit of technology. O 4) output per hour of work. O 5) output per unit of full-time employment. 身

7. LO 2, 4 Suppose that a consumer can earn a higher wage rate for working overtime. That is, for the first q hours the consumer works, he or she receives a real wage rate of w, and for hours worked more than q he or she receives w, where W2>W1. Suppose that the consumer pays no taxes and receives no nonwage income, and he or she is free to choose hours of work. (a) Draw the consumer's budget constraint, and show his or her optimal choice of consump- tion and leisure (b) Show that the consumer would never work hours, or anything very close to q Explain the intuition behind this. (c) Determine what hours. happens if the overtime wage rate w2 increases. Explain your results in terms of income and substitution effects. You must consider the case of a worker who initially works overtime, and a worker who initially does not work overtime.