Principles of Macroeconomics Plus MyLab Economics with Pearson eText (1-semester access) -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134424026
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 15, Problem 1.6P
To determine
Interdependence of household consumption and labor supply decision.
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Is this change labor saving, capital saving, or neutral?
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How much does this person earn per hour?
$
At point A, how many hours of labor are selected?
hourshours
At point A, how many hours of leisure are selected?
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Explain how households and firms interact in the factor market and in the product market
Chapter 15 Solutions
Principles of Macroeconomics Plus MyLab Economics with Pearson eText (1-semester access) -- Access Card Package (12th Edition)
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- what happens in the work-leisure model, when the wage rate is decreasing and income effect is stronger than substitution effect?arrow_forwardReproduce the diagram for the Robinson Crusoe economy for a firm that has constant returns to scale. Under what conditions will it be ancient for the firm not to produce? What is the consumption level of the consumer in such a case? Provide an interpretation of this possibility.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
- The labor supply curve is fundamentally a representation of the trade-off people face between which of the following? technology and wages work and leisure wages and productivity work and wagesarrow_forwardHumanity is faced with a tough choice, work or leisure. Within the theory of consumer behaviour, apply the labour-leisure choice model to explain what happens when there are two (2) consecutive increases in the wage rate of a an individual and use that to derive the individual's 1.labour supply curve 2.demand for leisure curvearrow_forwardDefine the income-leisure trade-off that makes up the labor supply functionand the intuition for the upward sloping labor supply curve. What two effectsare involved in this trade-off? Explain.arrow_forward
- During the great recession Obama administration had instituted a social security payroll tax break: in 2011-12 employees paid 4.2% of their paycheck to the social security fund. In January 2013 the break expired, and now employees pay 6.2% of their paychecks in social security taxes. How would you graphically model such a change using the labor-leisure model?… as a change in budget constraint or preferences? Illustrate. What prediction can we make with regards to hours worked as a result? Depending on your answer, which effect will dominate-income or substitution, that will affect the hours decision? Income support programs, (only if we discussed the TANF program in class). In 2005 North Carolina Temporary Assistance for Needy Families program, known as Work First, had the following features: Maximum monthly benefit (income guarantee), G, $272; Level of disregard. D, $0; Implicit tax rate 27.5%; How does the availability of the welfare program affect a family’s…arrow_forwardBased on this model, households earn income whenfirms purchase in factor markets. Suppose Amy earns $525 per week working as an analyst for A-Plus Accountants. She uses $10 to buy a box of aspirin at Pillmart Pharmacy. Pillmart Pharmacy pays Van $225 per week to work the cash register. Van uses $150 to purchase tax services from A-Plus Accountants. Identify whether each of the following events in this scenario occurs in the factor market or the product market. Event Factor Market Product Market Amy spends $10 to buy a box of aspirin. Van earns $225 per week working for Pillmart Pharmacy. Van spends $150 to purchase tax services from A-Plus Accountants. Which of the elements of this scenario represent a flow from a firm to a household? This could be a flow of dollars, inputs, or outputs. Check all that apply. The $225 per week Van earns working for Pillmart Pharmacy The $150 Van spends to purchase tax services from A-Plus Accountants The aspirin Amy receives Amy's laborarrow_forwardThe economic model of Human Capital Investment assumes that individuals choose their path through post-secondary education based solely on which path will provide them with the highest lifetime income. In reality, individuals often choose a path through post-secondary education that does not maximize their lifetime income, as a result of various factors. Consider Alex, an individual whose path through post-secondary education did not maximize their lifetime income. For each of the following potential reasons, construct a brief story that relates that reason to Alex's choice of post-secondary education. a) Utility/disutility from education b) Relationship between job satisfaction and education c) Uncertainty of different income streams d) Difficulty of financing human capital investments E.g. If the reason is "incomplete information", a potential answer would be: "Alex's high school guidance counsellor gave them a list of potential university programs that suited their strengths.…arrow_forward
- The lines on the graph are budget constraints, showing the tradeoff between labor and leisure. Suppose that when the wage changes, an individual chooses to move from point A to another point on the graph. For each of the other points, where would it belong on the backward bending labor supply curve? Backward‑bendingportionVerticalportionUpward‑slopingportion Answer Bank B D F C Earrow_forwardWhat is two factors that may influence the shape of individuals’ indifference curves (flat or steep) which reflect their preferences for work or leisure? What is the difference between income effect and substitution effect under the basic work-leisure decision model?arrow_forwardIdentify the following variables as procyclical, countercyclical, or acyclical: (1) consumption, (2) real wage, (3) employment, and (4) total factor productivity.arrow_forward
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