3. Suppose that a consumer can earn a higher wage rate for working overtime. That is, for the first q hours that the consumer works, she receives a real wage rate of w₁, and for hours worked more than q, the consumer receives a real wage of w2, where w₂> w₁. Suppose that the consumer pays no taxes and receives no nonwage income. (a) Write the consumer's budget constraint. (b) Draw the consumer's budget constraint and show graphically her optimal choice of consumption and leisure. (c) Show that the consumer would never work exactly q hours.

3. Suppose that a consumer can earn a higher wage rate for working overtime. That is, for the first q hours that the consumer works, she receives a real wage rate of w₁, and for hours worked more than q, the consumer receives a real wage of w2, where w₂> w₁. Suppose that the consumer pays no taxes and receives no nonwage income. (a) Write the consumer's budget constraint. (b) Draw the consumer's budget constraint and show graphically her optimal choice of consumption and leisure. (c) Show that the consumer would never work exactly q hours.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

See similar textbooks

Similar questions

The United States has established a progressive income tax system, where a worker’s tax rate onearnings increases as she earns more money. There are 168 hours in a given week. Assume thatfor the first 56 hours worked, the tax rate is t1, which means that the net real wage is w*(1-t1).After working the 56th hour, the worker jumps to a higher tax rate t2. After the 112th hourworked, the individual jumps to an even higher tax rate, t3.(a) During most election years, some politicians argue that a having a flat tax system isbetter. Assume that there is a proposal to institute a flat tax, where all workers pay a taxrate equal to t4, which is greater than t3. On the same set of axes, graph the budgetconstraints associated with the progressive tax system and the flat tax system. Make sureto label all of the slopes.(b) Would moving to this proposed flat tax system likely encourage more or fewer hoursworked for relatively high-wage workers? Make sure to explain your answer (a writtenexplanation…
A consumer's income in the current period is y = 100 and income in the future period is y'= 120. He or she pays lump-sum taxes t=20 in the current period and t'= 10 in the future period. The real interest rate is 0.1, or 10%, per period. (a) Determine the consumer's lifetime wealth. (b) Suppose that current and future consumptions are perfect complements for the con sumer and that he or she always wants to have equal consumption in the current and future periods. Draw the consumer's indiffer ence curves. (c) Determine what the consumer's optimal current-period and future-period consump tions are, and what optimal saving is, and show this in a diagram with the consumer's budget constraint and indifference curves. Is the consumer a lender or a borrower?
Theo, a single taxpayer, actively participates in a rental real estate activity. During the year, his total rental real estate income was $25,000. His only other income for the year was $180,000 in wages. He does not have any adjustments to income, nor does he have any expenses allocable to investment income. How much of Theo's income is subject to the net investment income tax? $0 $5,000 $25,000 $205,000
Why does substitution bias arise if we calculate the inflation rate based on a fixed basket of goods?
A consumer's current income (y) is 200 and the future income ( t.') is 240. A current lump sum tax (t) of 10 is paid and the tax in the next period (t') is 15. The real interest rate is 20% for each period. Please assume that current and future consumption are complements. and the consumer always prefers to have one unit of current consumption and two units of consumption in the future.Calculate the consumer's lifetime wealth.Calculate the optimal current and future consumption and the optimal current and future savings. Is the consumer a lender or a borrower? How does he she. as a lender or a borrower. affect the future consumption?
Suppose the consumption function is given by C(Y)=60+0.8(Y-T) where Y represents output and T stands for net taxes. Suppose further that the level of investment, I, is 400, the level of government expenditure, G, is 300, and net taxes, T, are 200. What is the equilibrium level of output in this economy? a. 1720 b. 3000 c. 1590 d. 720
A consumer's current income (y) is 200 and the future income ( t.') is 240. A current lump sum tax (t) of 10 is paid and the tax in the next period (t) is 15. The real interest rate is 20% for each period. Please assume that current and future consumption are complements. and the consumer always prefers to have one unit of current consumption and two units of consumption in the future. Calculate the optimal current and future consumption and the optimal current and future savings. Is the consumer a lender or a borrower? How does he she. as a lender or a borrower. affect the future consumption?
A new factory in a small town has an annual payroll of $6 million. It is expected that 60% of this moneywill be spend on the town will by factory personnel. The people in the town who receive this money areexpected to spend 60% of what they receive in the town, and so on.(a) What is the total of all this spending (called the “total economic impact”) of the factory on the towneach year?(b) How much additional spending will be generated by a 10 million dollar tax rebate if 60% of allincome is spent?
Which of the following results in an increase in consumers’ lifetime wealth, i.e. an increase in the net presentvalue of lifetime income? (a) Increase in interest rate(b) Decrease in future wages(c) Decrease in interest rate(d) Decrease in current taxes, financed by an increase in future taxes
As a hypothetical case, suppose the typical individual has a utility function expressed as U = (C – 50)*(L – 10), where C is consumption and L is leisure time. The current wage, w, is $5 and she has a weekly return on assets of V = $100. She only has 60 hours per week to divide between work hours, h, and Leisure. A number of countries and communities are considering implementing a “Guaranteed Basic Income” as policy. A “Guaranteed Basic Income” is a government payment of a fixed a amount of money for each person Suppose the country of interest sets the weekly payment at $100. i) Using the Neo-classical labor supply with reference to specific numerical values discuss the consequences of the above “Guaranteed Basic Income”. ii) Using the basic Supply and Demand for labor approach discuss the consequences of the “Guaranteed Basic Income” policy on the overall labor market. iii) Using a feedback approach, from the Neo-classical labor supply to market equilibrium and back to labor…
3. Suppose that Unemployment Insurance (UI) benefits are set according to the following rules: (i) minimum weekly earnings in last week of employment of $200.00 is needed to qualify; (ii) the maximum UI weekly benefit is $1000; and (iii) UI benefits are set equal to 50% of the last week's earnings between the minimum and maximum levels A. Show the structure of the UI benefit system on a diagram. B. Compute both the UI benefit level and the replacement rate if weekly earnings in the last week of employment is: (i) $100; (ii) $500; and (iii) $3,000.
Scenario 2Suppose the marginal product of capital is MPK=2-0.001K, the capital stock depreciates at 20% rate, the tax rate on revenues is 20% and price of capital is assumned to be 1. Furthermore, the economy has full-employment level of output of 5000, government purchases are 1000. Desired consumption is given by C^d=3000-2000r+0.1Y, where Y is output and r is expected real interest rate. Initial level of capital is 1000. Refer to Scenario 2. What is goods market clearing real interest rate? A)r=13.84 B)r=15% C)r=2% D)r=16%