Contemporary Labor Economics
11th Edition
ISBN: 9781259290602
Author: Campbell R. McConnell, Stanley L. Brue, David Macpherson
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 17QS
To determine
Impact of ending fixed weekly payment on the income, utility, and hours of work.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Lance lives in Williston, North Dakota. The firms in town, such as the Walmart, pay teenagers
without a high school degree the federal minimum wage of $7.25 an hour. Because his parents
provide him Y (mostly in the form of room and board), Lance chooses to stay in school and not
work. However, a new fracking firm starts production nearby so the wage rises to three times the
minimum wage. Use a labor-leisure choice figure to show why he does not work initially but then
works a substantial number of hours at the higher wage.
Draw Lance's original budget constraint and show that he does not choose to work.
The firms in town, such as the Walmart, pay teenagers without a high school degree the federal
minimum wage of $7.25 an hour. Assuming the price of consumption is $1.00, what is the slope of
Lance's original budget constraint?
The slope of Lance's original budget constraint is
places.)
(Round your response to two decimal
C
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.
Rebecca's wage is $10 per hour, and she can work up to 60 hours per week. The table and the budget
constraint graph show the trade-off that she faces between income and leisure in one week of potential work at
this wage.
Her manager raises her wage to $15 per hour. Change the graph below to illustrate her new income-leisure
budget constraint. The line and the individual endpoints are movable. Assume that nothing else changes.
Hours Leisure time Income ($)
(hours)
worked
at $10/hour
0
200
400
600
0
20
40
60
60
40
20
0
Income ($)
1000
900
800
700
600
500
400
300
200
100
0
0
10
20
30
40 50 60 70 80 90
Leisure (hours)
Chapter 2 Solutions
Contemporary Labor Economics
Knowledge Booster
Similar questions
- 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.]arrow_forwardJack'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)arrow_forwardAkua 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)arrow_forward
- Explain in detail Discuss the possible substitution effect and the income effect of an increase in income on leisure time.arrow_forwardAn 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…arrow_forwardWhat 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?arrow_forward
- A. Consider a consumer whose preferences can be represented by Cobb-Douglas utility function u(x₁, x₂) = xx where ₁ and 2 are the quantities of good 1 and good 2 she consumes. Let p₁ and p2 be the prices of good 1 and good 2 and let m denote her income. 1. Derive the consumer's Marshallian demand functions. 2. Derive the consumer's Hicksian demand functions. 3. Derive the consumer's expenditure function. 4. Let m = 20, P₁ = 2, and p2 = 1. Suppose that the price of good 1 drops to p₁ = 1. Find the following (a) Compensating variation (CV) (b) Equivalent variation (EV) (c) Change in consumer surplus (ACS) (d) Compare CV, ACS, and EV. 5. Let m = 120, P₁ = 1, and p2 = 1. Suppose that the price of good 1 increases to P₁ = 2. Find the following (a) Compensating variation (CV) (b) Equivalent variation (EV) (c) Change in consumer surplus (ACS) (d) Compare CV, ACS, and EV.arrow_forwardRaya has 80 hours per week that she can devote to time spent working or on leisure activities. Assume that Raya is paid by the hour, and that her job will always allow her to work as many hours as she chooses. The following graph presents Raya's weekly leisure-income tradeoff. The three lines labeled BC, BC, and BC, show her time allocation budget at three different hourly wage levels. The given points A, B, and C represent her optimal time allocation choices along each of these constraints. 1920 BC3 1280 BC₂ 640 BC₁ 5 0 35 40 45 LEISURE (Hours) For each listed point, use the preceding graph to complete the following table by indicating the hourly wage as well as the number of hours per week Raya will spend on labor and leisure. Point Wage (Dollars per hour) (Hours) Leisure Labor (Hours) A B C Based on the data you entered in the preceding table, use the orange curve (square symbols) to plot Raya's labor supply curve on the following graph, showing how much labor she supplies each week…arrow_forwardConsider 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 plannedarrow_forward
- 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.arrow_forwardEmberlynn has 80 hours per week that she can devote to time spent working or on leisure activities. Assume that Emberlynn is paid by the hour, and that her job will always allow her to work as many hours as she chooses. The following graph presents Emberlynn's weekly leisure-income tradeoff. The three lines labeled BC₁, BC₂, and BC show her time allocation budget at three different hourly wage levels. The given points A, B, and C represent her optimal time allocation choices along each of these constraints. INCOME (Dollars) 1200 800 400 0 BC₂ 8 BC, C 35 40 45 LEISURE (Hours) For each listed point, use the preceding graph to complete the following table by indicating the hourly wage as well as the number of hours per week Emberlynn will spend on labor and leisure. Wage Leisure Labor Point (Dollars per hour) (Hours) (Hours) A B Carrow_forwardA worker has no non-labor income and is earning $14/hour. He maximizes utility by working 40 hours per week. Begin by drawing a graph that illustrates this to be the utility-maximizing solution. The same worker loses his job. He is entitled to unemployment compensation that will pay up to 50% of his weekly earnings. The worker has an opportunity to supplement his unemployment compensation by taking a job that pays $7/hour. Using the same graph, show the worker's new budget line and his utility-maximizing decision as whether to work the new job and how many hours to work. Make sure your graph shows the relevant budget lines and indifference curves.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co