LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 2, Problem 5RQ
To determine
Determine the impact on working hours if nonlabor income increases.
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What happens to hours of work when the wage rate falls? Decompose the change in hours of work into income and substitution effects.
Sam has the following labor supply curve:
The income effect of a higher wage outweighs the substitution effect when wages are _____ .
The income effect is the phenomenon that workers choose to work _____ hours when they are given a raise, because _____ .
With the help of a diagram, make a distinction between substitution effect and income effect on individual labour supply.
Chapter 2 Solutions
LABOR ECONOMICS
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - A worker plans to retire at the age of 65, at...Ch. 2 - Prob. 12PCh. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15P
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- Use a diagram to thoroughly explain the backward bending labor supply curve and explain what income and substitution effects are.arrow_forwardPatrick has the following labour supply curve: WAGE RATE (Dollars per hour) W3 W2 W1 Labour Supply HOURS WORKED The substitution effect of a higher wage outweighs the income effect when wages are The substitution effect is the phenomenon that workers choose to work raise, because hours when they are given aarrow_forwardSuppose the wage you are being paid per hour doubles form $15 to $30. Would you decide to work more hours or fewer hours ? Is there an income and substitution effect involved in your decision about how many hours you choose to work? If so, what is being substituted for what?arrow_forward
- Explain in detail Discuss the possible substitution effect and the income effect of an increase in income on leisure time.arrow_forwardSay whether you agree or disagree with this statement and explain your reason: “If the income effect of a wage change dominates the substitution effect for a given household, and the household works longer hours following a wage change, wages must have risen.”arrow_forwardQuestion 12. The graph below illustrates the equilibrium outcome of a rising wage. Copy the graph, and indicate the income and substitution effects. Point to the new equilibrium. Explain what makes the new equilibrium optimal for the consumer. What is the total effect of the wage change? Why? 300 IC 225 150 75 8. 10 12 14 18 20 22 24 Hours of free time Consumption (S)arrow_forward
- if leisure is an inferior good, what can you say about the slope of the labor supply curve?arrow_forwardWork and Utility. Explain the concept of the "net utility of work." How is it useful in developing the labor supply curve?arrow_forwardWhat happens to hours of work when wage rate decreasearrow_forward
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