MICROECONOMICS Solutions to Problem Set 3 1. (Labour Supply) A worker derives utility from consumption (that is, goods per day), denoted by Y, and leisure, denoted by L: U = U (Y, L) and faces the "bud- get" constraint Y = w (24 - L) (NB: In contrast to the lecture handout, initially the worker has no nonlabour income.) (a) Is w "real" or "nominal" wage?

MICROECONOMICS Solutions to Problem Set 3 1. (Labour Supply) A worker derives utility from consumption (that is, goods per day), denoted by Y, and leisure, denoted by L: U = U (Y, L) and faces the "bud- get" constraint Y = w (24 - L) (NB: In contrast to the lecture handout, initially the worker has no nonlabour income.) (a) Is w "real" or "nominal" wage?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.11P

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Joko is a university student, working part-time at copying service center for Rp. 8/hour with zero non-labor income. (a) Graph Joko’s budget constraint and label the utility-maximing outcome if Joko opts to work 40 hours per week. (b) Suppose Joko’s parents decide to send him Rp.100/week. Graph Joko’s new budget constraint. (c) How many hours will Joko now have to work to maintain the same weekly income as in (a)?
Consider a consumer with the following utility function for consumption and leisure: U(R,C) = 160 In N +Y where N is the hours of leisure ("recreation") consumed per day (24 maximum) and Y is dollars spent on consumption (p = 1). The consumer has an hourly wage w. (a) Assume the consumer derives all income from work at a wage rate w. Derive the labor supply function, LS (w). (b) For what values of w does the consumer work zero hours? (Hint: does a corner solution arise?) (c) Suppose that w = 10. How many hours does this consumer work? If the wage rate increases to w' = 16, how many hours do they work? What is the total effect on the supply of labor?
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Labor Supply 1 LABOR (Hours) he income effect of a higher wage outweighs the substitution effect when wages are he income effect is the phenomenon that workers choose to work hours when they are given a raise, because WAGE RATE (Dollars per (unoy