Question

26. Consider an individual with preferences given by the formula U = LY. Suppose the total...

26. Consider an individual with preferences given by the formula U = LY. Suppose the total time available per day is 16 hours, the wage rate is $5, and nonlabor income is zero.

26a. Calculate the optimal level of leisure and labor hours, and the resulting earnings and utility level.

26b. Suppose the person is injured on the job in such a way that he cannot work at all. Prove that a policy that compensates the worker for his lost income will increase his utility.

26c. Find the minimum percentage of income that could be replaced and just keep the worker at the same level of utility as before his injury. Do you see any problems with this analysis?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider an individual with preferences given by ?(?, ?) = 2?^1/2 . C^1/2 where C is...
Consider an individual with preferences given by ?(?, ?) = 2?^1/2 . C^1/2 where C is consumption and L is leisure. Suppose the total time available each day is 16 hours, the wage rate is $8, the price of the consumption good is normalized to $1, and non-labour income is $50. (i) What is the individual’s reservation wage? Will the individual participate in the labour market? (ii) What is the optimal time spent working given these preferences and budget constraint?
Suppose that the consumer’s preferences are given by U(c,l)=2c ^(1/2) +2l ^(1/2) where c is the...
Suppose that the consumer’s preferences are given by U(c,l)=2c ^(1/2) +2l ^(1/2) where c is the level of consumption and l is leisure. The consumer has to allocate 50 hours between leisure and labour. The real wage rate is 10 per hour and the real non-wage income is 160. Assume that there is no government. Note that (∂c ^(1/2)) / (∂c) = (1/2) c^(-1/2) (a) Write the budget constraint of the household. (b) Solve for the tangency condition using the...
Suppose that a worker’s utility (i.e., preferences) with respect to total income (Y) and hours of...
Suppose that a worker’s utility (i.e., preferences) with respect to total income (Y) and hours of leisure time per week (LT) can be represented by the following Cobb-Douglas utility function: U = Y0.4 ∙ LT0.6 (note: A=1; α=0.4; β=0.6) Assume that the market wage is $25 per hour of work (H), and his/her non-labor income is $300 per week. The worker has 70 hours per week to allocate between labor market activity and leisure time (i.e., T = 70). Given...
31. Consider a worker with a utility function given by the equation U =Y , where...
31. Consider a worker with a utility function given by the equation U =Y , where Y is total income and U is the level of utility. Assume the individual receives no nonlabor income. *31a. Suppose that Job A pays $5 per hour and involves working 5 hours per day every day during the year. What is the level of utility the person will attain on a daily basis? What will be the average level of utility attained (per day)...
2. An individual utility function is given by U(c,h) = c·h, where c represents consumption during...
2. An individual utility function is given by U(c,h) = c·h, where c represents consumption during a typical day and h hours of leisure enjoyed during that day. Let l be the hours of work during a day, then l + h = 24. The real hourly market wage rate the individual can earn is w = $20. This individual receives daily government transfer benefits equal to n = $100. For the graphical analysis of this individual’s utility maximization problem,...
Suppose the representative consumer’s preferences are given by the utility function, U(C, l) = aln C...
Suppose the representative consumer’s preferences are given by the utility function, U(C, l) = aln C + (1- a) ln l Where C is consumption and l is leisure, with a utility function that is increasing both the arguments and strictly quiescence, and twice differentiable. Question: The total quantity of time available to the consumer is h. The consumer earns w real wage from working in the market, receives endowment π from his/her parents, and pays the T lump-sum tax...
Consider a consumer who has preferences over consumption (x) and leisure (L) represented by u(L, x)...
Consider a consumer who has preferences over consumption (x) and leisure (L) represented by u(L, x) = 10 ln L + 5 ln x. The consumer has 24 hours in the day (T = 24) to divide between work and leisure. The consumer can choose however many hours they want to work. For each hour of work they are paid a wage given by w = 10. Consumption (x) costs 1 per unit. (a) Initially suppose that the consumer has...
John’s utility function is represented by the following: U(C,L) = (C-400)*(L-100), where C is expenditure on...
John’s utility function is represented by the following: U(C,L) = (C-400)*(L-100), where C is expenditure on consumption goods and L is hours of leisure time. Suppose that John receives $150 per week in investment income regardless of how much he works. He earns a wage of $20 per hour. Assume that John has 110 non-sleeping hours a week that could be devoted to work. a.Graph John’s budget constraint. b.Find John’s optimal amount of consumption and leisure. c.John inherits $300,000 from...
Consider the static labor supply model discussed in class, and assume U(c,l) = C0.2l(0.8). A worker...
Consider the static labor supply model discussed in class, and assume U(c,l) = C0.2l(0.8). A worker chooses his level of labor supply and consumption according to the following maximization problem:1 maxU(c,l) = c0.2 ×l0.8, s.t. C ≤ wh + Y h = 18−l C,l ≥ 0 a) Assume that non-labor income Y = 100$ and that the wage rate is w = 10$/hour. Find the individual’s optimal level of labor supply (h) and his optimal level of consumption (c). b)...
Suppose the preferences of an individual are represented by a quasilinear utility func- tion: U (x,...
Suppose the preferences of an individual are represented by a quasilinear utility func- tion: U (x, y) = 3 ln(x) + 6y (a) Initially, px=1, py=2 and I=101. Then, the price of x increases to 2 (px=2). Cal- culate the changes in the demand for x. What can you say about the substitution and income effects of the change in px on the consumption of x? (Hint: since the change in price is not small, you cannot use the Slutsky...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT