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3. A worker has a wage of £10 an hour, and chooses to work eight hours a day. Represent this decision in a suitably labelled graph. (Assume convex preferences)

3. A worker has a wage of £10 an hour, and chooses to work eight hours a day. Represent this decision in a suitably labelled graph. (Assume convex preferences)

Microeconomic Theory
Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter16: Labor Markets
Section: Chapter Questions
Problem 16.10P
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PLEASE ANSWER QUESTION 3

Section one-theory A: Key concepts 1. What is the marginal rate of substitution? 2. Can Giffin goods also be normal goods? B: Theory: Labour supply For the following three questions, assume that leisure is a normal good. 3. A worker has a wage of £10 an hour, and chooses to work eight hours a day. Represent this decision in a suitably labelled graph. (Assume convex preferences) 4. The worker is taxed a lump sum of £30. Show the effect on the budget curve graphically. Would labour supply go up or down? 5. Return to the scenario in question 3. The worker's wage increases from £10 an hour to £12. Assuming that the substitution effect dominates the income effect, would hours worked go up or down? Show these two effects in a suitably labelled graph. (Change in hours don't need to be specific – it is the direction we care about here.) Section two-theory and policy C: Payday loans 6. Samson can choose between two goods: consumption this week, and consumption next week. His income is £200 this week and their income next week is £200. He can just put this week's money under their mattress for the future. Alternatively, he can borrow £190 and pay back £200 next week. Show Samson's budget set in a suitably labelled graph. 7. The government bans all payday loans. Show the effect on Samson's budget set. 8. Assume that Samson was a borrower before the change. Would this policy make him better or worse off (i.e. happier.) Explain. Section three - the interpretation of policy D: Three strikes laws 9. Proponents of "three strikes" laws argued that, to reduce criminality one need only make it costlier. The policy gave very long sentences to people who committed a third crime, regardless of how minor. Analyse this policy, assuming that criminals care for (i) monetary proceeds of crime and (ii) years of liberty. Available evidence shows that the policy was ineffective in reducing the incidence of crime. What kind of good would you say 'proceeds of crime' are?
Transcribed Image Text:Section one-theory A: Key concepts 1. What is the marginal rate of substitution? 2. Can Giffin goods also be normal goods? B: Theory: Labour supply For the following three questions, assume that leisure is a normal good. 3. A worker has a wage of £10 an hour, and chooses to work eight hours a day. Represent this decision in a suitably labelled graph. (Assume convex preferences) 4. The worker is taxed a lump sum of £30. Show the effect on the budget curve graphically. Would labour supply go up or down? 5. Return to the scenario in question 3. The worker's wage increases from £10 an hour to £12. Assuming that the substitution effect dominates the income effect, would hours worked go up or down? Show these two effects in a suitably labelled graph. (Change in hours don't need to be specific – it is the direction we care about here.) Section two-theory and policy C: Payday loans 6. Samson can choose between two goods: consumption this week, and consumption next week. His income is £200 this week and their income next week is £200. He can just put this week's money under their mattress for the future. Alternatively, he can borrow £190 and pay back £200 next week. Show Samson's budget set in a suitably labelled graph. 7. The government bans all payday loans. Show the effect on Samson's budget set. 8. Assume that Samson was a borrower before the change. Would this policy make him better or worse off (i.e. happier.) Explain. Section three - the interpretation of policy D: Three strikes laws 9. Proponents of "three strikes" laws argued that, to reduce criminality one need only make it costlier. The policy gave very long sentences to people who committed a third crime, regardless of how minor. Analyse this policy, assuming that criminals care for (i) monetary proceeds of crime and (ii) years of liberty. Available evidence shows that the policy was ineffective in reducing the incidence of crime. What kind of good would you say 'proceeds of crime' are?
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