Question

1) Why do labor supply curves bend backwards?

2)someone offers to pay you in three installments if you give him $350. The three installments are $50 one year from today, $100 three years from today, and $150 five years from today. If the interest rate is 5% would you be interested in doing this?why?

3) Evaluate which of the following investments is best based on the following criteria: Return, Risk, Liquidity, Tax Implications

A) A home you plan on renting

B) 500 Baseball cards of a current star player.

C)A bond issued by the City of Blank for a new sanitary treatment plant.

4) Below graph a monopolistically competitive firm breaking even.

Answer 1

ANSWER-1)

The supply curve of labor begins to bend backward at the point where the income effect comes to dominate the substitution effect. As the wage rate climb, people are willing to work longer hours. However at a certain point they will begin to cut back on their hours as the wage rate continues to increase. Beyond such point they are willing to trade away certain money for more leisure time because an increased wage rate may allow a person to reduce hours worked without any loss in income