Consider an individual who lives in an economy without a welfare program. They initially work T-Lo hours per week, where (T-Lo)>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 (Uo), choice of leisure hours (Lo) and income (Yo). b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Yo) and there is a 50% clawback on any labour income earned. The individual now maximizes their utility by working and collecting a partial welfare benefit. On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing

Consider an individual who lives in an economy without a welfare program. They initially work T-Lo hours per week, where (T-Lo)>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 (Uo), choice of leisure hours (Lo) and income (Yo). b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Yo) and there is a 50% clawback on any labour income earned. The individual now maximizes their utility by working and collecting a partial welfare benefit. On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.2P

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What is the budget line for consumption (C) and leisure (L) if a person faces a constant wage of $12 per hour, there are 110 hours in the week to work, and she receives nonlabor income of $300 per week?
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.
Follow up question g. Explain why the utility curves cannot be drawn so as to induce the worker to work between L1 and L2 hours. h Yelowitz (1995) studies a Medicaid reform measure that reduced the Medicaid work disincentive. One of the reforms he studied raised the Medicaid eligibility threshold income level by 33%. Draw a new version of the fifigure with a new labor–income curve that reflflects this change. Explain how this change might induce someone currently working L1 hours per year to work more, and be sure to draw indifffference curves to support your answer.
Suppose that the owner of Boyer Construction is feeling the pinch of incrs associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)
Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with worker’s compensation and has decided to cut the wages of its two employees (Albert and Sid) from $25 per hour to $22 per hour. Assume that Albert and Sid view income and leisure as “goods,” that both experience a diminishing rate of marginal substitution between income and leisure, and that the workers have the same before- and after-tax budget constraints at each wage. Draw each worker’s opportunity set for each hourly wage. At the wage of $25 per hour, both Albert and Sid are observed to consume 12 hours of leisure (and, equivalently, supply 12 hours of labor). After wages were cut to $22, Albert consumes 10 hours of leisure and Sid consumes 14 hours of leisure. Determine the number of hours of labor each worker supplies at a wage of $22 per hour. How can you explain the seemingly contradictory result that the workers supply a different number of labor hours? (LO2, LO3, LO7)
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
Akua gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 110 hours. Her utility function is U (C, L) = C × L. Akua receives 660 GHS each week from her great-grandmother—regardless of how much she works. a. What will be Akua’s marginal rate of substitution. b. What will be Akua’s reservation wage? (Explain in detail)
ASAP pls Discuss the possible substitution effect and the income effect of an increase in income on leisure time..
Consider worker 1 with non-labour income Y facing a wage offer w and a utility function defined over consumption and leisure. U(c,l) = lnC + 4lnl a) Derive worker’s income elasticity. Is leisure a normal or inferior good for this worker? b) Provide the functional form of the income effect from a marginal decrease in income. c) Provide the functional form of the substitution and total income effects of a marginal increase in wage.
(i) Keith’s marginal utility of leisure is C – 20 and his marginal utility of consumption is L – 50. There are 110 hours in the week available to split between work and leisure. Keith receives £250 of welfare payments each week regardless of how much he works (assume he spends all of his welfare payments on consumption). What is Keith’s reservation wage? (ii) Suppose Danny receives the same welfare payments each week as Keith and has the same number of available hours (110). However, Danny’s indifference curve is flatter than Keith’s. How would his reservation wage compare to Keith’s? Why?
Discuss the possible substitution effect and the income effect of an increase in income on leisure time.
Draw the indifference curve for someone decidinghow to allocate time between work and leisure.Suppose the wage increases. Is it possible that theperson’s consumption would fall? Is this plausible?Discuss. (Hint: Think about income and substitutioneffects.)