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 1) Compare worker 1 with worker 2 whose utility function is described by U(c,l) = cl. Which worker places a higher value on labour market work? 1 2) Suppose the worker participates in the labour market. Derive worker’s compensated labor supply function and the compensated labour supply elasticity with respect to wage as a function of utility level and wage. 3) Derive worker’s uncompensated labour supply function (for labour market participants and non-participants) and the uncompensated labour supply elasticity (for labor market participants) with respect to wage as a function of non-labour income and wage. 4) Derive worker’s income elasticity. Is leisure a normal or inferior good for this worker?

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 1) Compare worker 1 with worker 2 whose utility function is described by U(c,l) = cl. Which worker places a higher value on labour market work? 1 2) Suppose the worker participates in the labour market. Derive worker’s compensated labor supply function and the compensated labour supply elasticity with respect to wage as a function of utility level and wage. 3) Derive worker’s uncompensated labour supply function (for labour market participants and non-participants) and the uncompensated labour supply elasticity (for labor market participants) with respect to wage as a function of non-labour income and wage. 4) Derive worker’s income elasticity. Is leisure a normal or inferior good for this worker?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.2P

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