Contemporary Labor Economics
11th Edition
ISBN: 9781259290602
Author: Campbell R. McConnell, Stanley L. Brue, David Macpherson
Publisher: McGraw-Hill Education
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Question
Chapter 3, Problem 9QS
To determine
The labor market opportunities and non-labor income of African-Americans.
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What 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?
When focusing on a married couple, one person’s non-labor income includes the laborearnings of his/her partner. Using a graph of budget constraints and indifference curves,describe what would happen to the labor supply of one spouse if the other experiences aninvoluntary job loss. Your answer does not depend on whether the spouse you’regraphing is initially supplying labor or not.
Consider the following labor-leisure choice model. U(C,L) = C^2/3L^1/3
C = wN + π – T
H= N+ L Where
C: consumptionL: leisureN: hours workedH = 50 : total hoursw = 4 : hourly wageπ = 20 : non-labor income T = 10 : lump-sum tax
Suppose the hourly wage changes to w = 5. Perform a decomposition and fill in the table
C
L
N
Substitution Effect
Income Effect
Total Effect
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- 1. 6. Consider an individual who initially works T-L. hours per week, where (T-L.)>0. They earn an hourly wage (W) and no non-labour income. a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing indifference curve (U.) and choice of leisure hours (L). b) The government then implements a wage subsidy program in which worker wages are increased by 10%. This wage subsidy program has no limits, so there is no phase-in/out. This wage subsidy produces both an income effect and a substitution effect on the worker's choice of leisure hours. Assume that the substitution effect is stronger than the income effect. On the same graph as parta, draw this individual's new income-leisure constraint, utility- maximizing indifference curve (U.) and choice of leisure hours (Ls). [Note: When incorporating the 10% wage subsidy into the graph in part b, I am not expecting perfect precision. Just try your best to draw the new income-leisure constraint as though a 10%…arrow_forwardHow does path dependency provide an explanation for differentiation in earnings between men & women?arrow_forwardYou have two choices in jobs. Job A means you earn $70,000 a year, in an area where the average income is $80,000. Job B means you earn $60,000 a year in an area where the average income is $50,000. Assume all other factors such as housing quality, schooling, etc are the same. A "rational profit maximizer" would: Have an indeterminate choice. Be indifferent between the two wages. Always choose the lower wage. Always choose the higher wage.arrow_forward
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