(Assume that this is a competitive market.) Arnold gets utility from consumption (C) and leisure (L), according to U(C,L) = In C + In L. His budget constraint is C = WH + Y, where H is the number of hours he works in the week and W is his hourly wage rate. There are 100 total ours in the week, which Arnold can spend working or pursuing leisure activities. His unearned income, %3D %3D Y, is $50. Note that dULac = /c,d0/al = /L- %3D a. What is the optimality condition (just the formula) for Arnold's utility maximization problem?
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- Consider a couple (a husband and a wife) that jointly represents their collective preferences between combinations of household production time (X) and purchased goods and services (Y) according to the formula W = X2Y, where W represents the level of welfare. Suppose the maximum time available in a day is 16 hours and currently the wife devotes 6 hours to market work (H) at a wage of $16 per hour. a. What is the level of welfare associated with the wife’s current situation? b. How much additional purchasing power would the wife contribute if her market work hours increased to 8? c. How much of an increase in purchased goods and services would be necessary to compensate for the additional 2 hours of lost household production? d. Should this couple choose to have the wife increase her market work by 2 hours? e. If this couple is raising a child, suppose that combinations of household production and purchased goods are now ranked according to the formula U = X3Y. Would the additional 2…Using the utility function and wage constraint in the problem, please complete the utility maximization problem using the substituion and Lagrangian method. If you can not do both, I would prefer the substitution method.Suppose a person can work up to 80 hours per week at a pre-tax wage of $20 per hour but faces a constant 20% payroll tax. Assume that under these conditions the person maximizes utility by choosing to work 50 hours each week. The government proposes a negative income tax so that everyone receives $300 per week regardless of how much they work. To pay for the negative income tax, the payroll tax would be increased to 50%. Using the labor-leisure model, graphically show whether a person would be better off if the negative income tax is adopted and indicate whether hours worked increases or decreases due to the policy.
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- Joko is a university student, working part-time at copying service center for Rp. 8/hour with zero non-labor income. (a) Graph Joko’s budget constraint and label the utility-maximing outcome if Joko opts to work 40 hours per week. (b) Suppose Joko’s parents decide to send him Rp.100/week. Graph Joko’s new budget constraint. (c) How many hours will Joko now have to work to maintain the same weekly income as in (a)?The utility of Amanda for leisure (L) and income (Y) is U = LY. The price of income is 1. If Amanda uses her spare L hours a day, (24 - L) hours will be labored. Since wages are w, the daily income is (24 - L). If the wages are positive, show that the optimal number of leisure hours that Amanda will use will always be the same. How much leisure time does Amanda demand and how much work time do she want to provide?Mac can trade off leisure for income. The rate at which he can do so is given by the wage rate. Mac is endowed with 24 hours per day. (a) Assume that leisure is a normal good. Construct Mac’s labor supply curve from an indifference curve/budget constraint mapping. (b) Now assume leisure is an inferior good. Construct Mac’s labor supply curve from an indifference curve/budget constraint mapping.
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