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**Exercise 15.2** and **Exercise 15.3** asked you to describe the labor-leisure tradeoff for Jonathon. Since, in the first example, there is no monetary incentive for Jonathon to work, explain why he may choose to work anyway. Explain what the **Exercise 15.2** and **Exercise 15.3**, analyze how the government welfare system affects Jonathan’s incentive to work.

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# Chapter 15 Solutions

Principles of Economics 2e

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- Debbie is about to choose a career path. She has narrowed her options to two alternatives. She can become either a marine biologist or a concert pianist. Debbie lives two periods. In the first, she gets an education. In the second, she works in the labor market. If Debbie becomes a marine biologist, she will spend $15,000 on education in the first period and earn $472,000 in the second period. If she becomes a concert pianist, she will spend $40,000 on education in the first period and then earn $500,000 in the second period.a. Suppose Debbie can lend and borrow money at a 5 percent rate of interest between the two periods. Which career will she pursue? What if she can lend and borrow money at a 15 percent rate of interest? Will she choose a different option? Why?b. Suppose musical conservatories raise their tuition so that it now costs Debbie $60,000 to become a concert pianist. What career will Debbie pursue if the interest rate is 5 percent?
*arrow_forward*Please show the exact plotting points for the graph and please answer the table and last question*arrow_forward*Mike’s utility function for consumption and leisure is U=CL and T=168. Mike earns $10 per hour. What is Mike’s optimal amount of C and L? If the government starts a welfare policy that pays B dollars to all nonworkers and $0 to all worker, at what value of B will Mike find it optimum being out of the labour force in order to go on welfare?*arrow_forward* - Why does a worker allocate his or her time over the life cycle so as to work more hours in those periods when the wage is highest? Why does the worker not experience an income effect during those periods?
*arrow_forward*Select the correct one and explain it.*arrow_forward*Consider two workers with identical preferences, Phil and Bill. Both workers have the same life cycle wage path in that they face the same wage at every age, and they know what their future wages will be. Leisure and consumption are both normal goods. a. Compare the life cycle path of hours of work between the two workers if Bill receives a one-time, unexpected inheritance at the age of 35. b. Compare the life cycle path of hours of work between the two workers if Bill had always known he would receive (and, in fact, does receive) a one-time inheritance at the age of 35.*arrow_forward* - "Do Men and Women Earn the Same Amount?" Please give a reason behind your answer.
*arrow_forward*True or False. Explain why. Deniz’s preferences for consumption and leisure is as follows:U(C,L)=C2LDeniz has 100 hours in the week available to split between work and leisure. She earns $10 per hour after taxes. She also receives $260 worth of welfare benefits each week. Deniz’s optimal amount of leisure time will be 45 whereas labour supply will be 55.*arrow_forward*Emberlynn has 80 hours per week that she can devote to time spent working or on leisure activities. Assume that Emberlynn is paid by the hour, and that her job will always allow her to work as many hours as she chooses. The following graph presents Emberlynn's weekly leisure-income tradeoff. The three lines labeled BC₁, BC₂, and BC show her time allocation budget at three different hourly wage levels. The given points A, B, and C represent her optimal time allocation choices along each of these constraints. INCOME (Dollars) 1200 800 400 0 BC₂ 8 BC, C 35 40 45 LEISURE (Hours) For each listed point, use the preceding graph to complete the following table by indicating the hourly wage as well as the number of hours per week Emberlynn will spend on labor and leisure. Wage Leisure Labor Point (Dollars per hour) (Hours) (Hours) A B C*arrow_forward* - Presently, there is a minimum and maximum social security benefit paid to retirees. Between these two bounds, a retiree’s benefit level depends on how much she contributed to the system over her work life. Suppose Social Security was changed so that everyone aged 65 or older was paid $12,000 per year regardless of how much she earned over her working life or whether she continued to work after the age of 65. How would this likely affect hours worked of retirees?
*arrow_forward*Raya has 80 hours per week that she can devote to time spent working or on leisure activities. Assume that Raya is paid by the hour, and that her job will always allow her to work as many hours as she chooses. The following graph presents Raya's weekly leisure-income tradeoff. The three lines labeled BC, BC, and BC, show her time allocation budget at three different hourly wage levels. The given points A, B, and C represent her optimal time allocation choices along each of these constraints. 1920 BC3 1280 BC₂ 640 BC₁ 5 0 35 40 45 LEISURE (Hours) For each listed point, use the preceding graph to complete the following table by indicating the hourly wage as well as the number of hours per week Raya will spend on labor and leisure. Point Wage (Dollars per hour) (Hours) Leisure Labor (Hours) A B C Based on the data you entered in the preceding table, use the orange curve (square symbols) to plot Raya's labor supply curve on the following graph, showing how much labor she supplies each week…*arrow_forward*A recent trend in health insurance is the Health Savings Account (HSA). The idea behind Health Savings Accounts is that rather than providing employees with health insurance that makes visiting doctors cost little more than a simple $10 or $20 copay the employer gives the employee money to use to spend on health care, but the employee bares the entire cost of seeing the doctor. What money given for health care not spent by the employee can be withdrawn by the employee as if it was additional income. It is believed that Health Savings Accounts will reduce the total amount of money spent on seeing doctors. Using Supply and Demand analysis, explain why there is the expectation that HSA’s will reduce spending on doctors.*arrow_forward*

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- Managerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage Learning