Imagine a consumer - worker who has a total time endowment of T = 100 hours per week. He can use these hours for work or for leisure. All the money that he will gain from work will be used for consumption. His utility function is U=C1/2 R¹/2 where C is consumption of consumer goods and R is consumption of leisure. The wage rate is £10 per hour, and the unit price of consumer goods is £1. Hours of labour supplied are denoted by L, where L = T - R. In light of this: į How much labour does the consumer - worker supply? ii. iii. What will the worker's labour supply be if the government sets a minimum wage at £20 per hour? What can you conclude from this for the worker's labour supply curve? Critically evaluate whether this is an efficient policy for increasing productivity. Within the context of labour supply, explain what substitution and income effects are and differentiate between the two effects in the long run and the short run.

Imagine a consumer - worker who has a total time endowment of T = 100 hours per week. He can use these hours for work or for leisure. All the money that he will gain from work will be used for consumption. His utility function is U=C1/2 R¹/2 where C is consumption of consumer goods and R is consumption of leisure. The wage rate is £10 per hour, and the unit price of consumer goods is £1. Hours of labour supplied are denoted by L, where L = T - R. In light of this: į How much labour does the consumer - worker supply? ii. iii. What will the worker's labour supply be if the government sets a minimum wage at £20 per hour? What can you conclude from this for the worker's labour supply curve? Critically evaluate whether this is an efficient policy for increasing productivity. Within the context of labour supply, explain what substitution and income effects are and differentiate between the two effects in the long run and the short run.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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