Principles of Micoroeconomics, Student Value Edition
11th Edition
ISBN: 9780133024265
Author: Karl E. Case
Publisher: PEARSON
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Chapter 10, Problem 8P
To determine
Investment tax credit.
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Use the following parameters to sketch two budget constraints, one with no (or $0) basic personal amount (BPA) and one with $1000 BPA, in a diagram:i. Assume there is only one tax bracket with income tax rate 50%ii. Time endowment = 24, wage rate per hour = $100iii. No other deductions and tax credits. Based on your diagram, discuss how the increase in BPA from $0 to $1000 would affect the labor supply due to the substitution and income effects.
Suppose that the owner of Boyer Construction is feeling the pinch of increased premiums associated with workers’ compensation and has decided to cut the wages of its two employees (Albert and Sid) from $23 per hour to $20 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. Albert and Sid's opportunity set is presented below:
"The horizontal axis labeled leisure hours ranges from 0 to 30 in increments of 5. The vertical axis is labeled income. A line begins at point A on the vertical axis goes down to the right and ends at the point (25, 0)."
What is the value of A when the wage is $23?
(Assume a 24-hour work day.)
What is the value of A when the wage is $20?
(Assume a 24-hour work day.)
At the wage of $23 per hour, both Albert and Sid are observed to consume 13 hours of…
Which statement best explains how the substitution effect impacts labor as a factor of production?
Scarcity of a reliable workforce leads to increased rates of unemployment.
Falling salaries cause a large staff turnover and hostile working environment.
Increased wage demands may lead to worker layoffs in favor of machinery.
Inexperience workers are more likely to receive professional training.
Chapter 10 Solutions
Principles of Micoroeconomics, Student Value Edition
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- Suppose that following represents the utility function of the individual U(c,l)=log(c)+log(l) c = consumption level of the individual and l = leisure, while the market wage is 10 and available time is 20. 1) Find and draw the labor supply function. 2) Suppose that the government introduces a cash grant for the labor (who is in the labor force) in the amount of R. Find and draw the labor supply function? Compare it to the labor supply function you have found in a). 3) Discuss the existence of reservation wage in the settings described in a and b? If your answer is : “there are no reservation wages under those settings”, please introduce a change in the policy described in b) to make sure that the reservation wage would exist.arrow_forwardThe following graph shows the labor market for research assistants in the fictional country of Collegia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 200. Suppose the government has decided to institute a $4-per-hour payroll tax on research assistants and is trying to determine whether the tax should be levied on the employer, the workers, or both (such that half the tax is collected from each side). Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (initially set at zero dollars per hour) shifts the demand curve down by the amount you enter, and entering a number into the Tax Levied on Workers field (initially set at zero dollars per hour) shifts the supply curve up by the amount you enter. To determine the before-tax wage for each tax proposal, adjust the amount in the Wage field until the quantity of labor supplied equals the quantity of labor demanded. You will not be…arrow_forwardIllustrate (using a labor-leisure choice diagram) how a firm may induce a typical employee to lengthen his work week voluntarily by paying him premium wage rates for overtime hours.arrow_forward
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