Question

2. Workers with different levels of non-labor wealth, such as land, all else equal, have different “minimum piece rates”, that is, different rates (per unit of output) at which they would be able to work. This is because their non-labor assets can generate income that can be used to pay for nutrition. Use this result to draw a graph that features the minimum piece rate at which a worker is able to work on the y-axis and non-labor wealth on the x-axis. Be sure to allow for part of the population with non-labor wealth.

3. Usually it is assumed that richer people will require higher rates to be willing to work (think about why this is the case). Draw this onto the same graph as (2). You may assume that the “reservation rate” that someone with zero non-labor wealth would accept is above zero.

4. Use your results from (2) and (3) to show how a situation could exist in which some people choose not to work while others wish to work but are unable to do so because their caloric intake is too low.

5.In words, describe how a poverty trap could exist in this model. Describe how somebody could be caught in a poverty trap, in terms of her income, caloric intake, and ability to work.

6. Using a graph, show how a vaccination campaign might affect the capacity curve, and describe in words the mechanisms through which this effect might occur.

7. Assuming no change in labor demand, what is the effect of the vaccination campaign on the equilibrium rate in this model?

Answer 1