Question

William receives $100 in dividends each week. He earns an hourly wage of $20 per hour. Assume that there are 168 hours available to William each week. William decides to work 42 hours per week at his current wage. When his wage increase to $25 per hour, William elects to work 37 hours per week. Use a diagram to show William’s initial combination of work hours and consumption, his new combination of work hours and consumption after the wage increase, and carefully decompose the change in work hours into substitution and income effects. (Note: for the income and substation effects I am just looking for a sketch of the diagram. So, for example, you will not be able to show me the exact sizes of the income and substitution effects because I did not give you a utility function).

Answer #1

1. Sam receives a regular wage of $15 per hour for a 40 hour
week. he receives one and one-half his regular hourly rate for
hours over 40 per week and twice his normal rate for Sundays and
holidays. Last week Sam worked 62 hours including 8 hours on a
holiday. Calculate Sam's gross pay.
2. Calculate Sam's social security and Medicare tax.
3. Assume Sam's federal income tax is $155, union dues are $7
and life insurance is $15.60....

2. Henry works in a movie theater and his wage is initially $12
per hour and he usually works 30 hours per week. Henry’s boss gives
him a raise and his wage increases to $15 per hour. Henry now
decides to work 33 hours per week.
(a) What is Henry’s labor supply elasticity?
(b) Is Henry’s labor supply curve inelastic or elastic? Explain
what this means in a few words.
(c) Explain whether the income or substitution effect dominated
after...

Your friend Conrad currently works in the local grocery store.
He works 32 hours per week and is paid an hourly wage of $ 18 per
hour. While he is not allowed to work more than 40 hours per week,
Conrad can choose to work any number of hours between 30 and 40
hours. Conrad is going to get a raise to $ 20 per hour next week.
When you relate this fact to your economics professor, he assures
you...

Suppose you have 24
hours per day that you can allocate between leisure and
working.
(i)
Draw the budget constraint between
“leisure hours” on the horizontal axis and “wage income” on the
vertical when the wage rate is $40 per hour. Mark an optimum point
A that is meaningful. Draw a new budget constraint when the wage
rate falls to $30 per hour. Show a new optimum point B.
(ii)
On your indifference curve diagram,
decompose the effect of the...

Suppose that you have a job with a wage of $25 per hour. The job
is extremely flexible: you
can choose to work any number of hours from 0 to 2,000 per year.
The income tax system
is as follows.
•Income up to $10000: no tax.
•Income from $10000 to $30000: 20% tax rate.
•Income from $30000 up: 30% tax rate.
(a) Draw a graph in leisure hours/consumption space, showing
your opportunity set with
and without the tax system. Label...

Ira’s only source of income is from working. He can work as many
hours per day as he wishes (up to a maximum of 24 hours) at a fixed
wage rate of $10 / hour.
b. Suppose, that the government introduces a tax rate of 50
cents in the dollar. Suppose that leisure is a normal good that tax
ends up reducing Ira’s hours worked. Show in your diagram the
effect of the tax on Ira’s budget constraint and possible...

Ira’s only source of income is from working. He can work
as many hours per day as he wishes (up to a maximum of 24 hours) at
a fixed wage rate of $10 / hour.
a. Initially, assume that there is no income
tax.
Draw Ira’s budget constraint.
b. Now suppose, that the government introduces a tax
rate of 50 cents in the dollar. Suppose that leisure is a normal
good that tax ends up reducing Ira’s hours worked. Show...

Bob is deciding how much labour he should supply. He
gets utility from consumption of beer (given by C) and from leisure
time (given by L), which he spends hanging out with his friend
Doug. This utility is given by the following utility function: U(C,
L) = ln(C) + θ ln(L) where the value of θ was determined by your
student number and ln(C) denotes the natural logarithm of
consumption etc. Given this utility function, Bob’s marginal
utility from consumption...

1. Show a consumer’s budget constraint and indifference curves
for soda drinks and slices of pizza. Show the optimal consumption
choice. If the price of soda drinks is $1.50 per can and the price
of a slice of pizza is $2 per slice, what is the marginal rate of
substitution at the optimum?
2. Suppose the income elasticity of demand for food is 0.5 and
the price elasticity of demand is −0.25. Suppose also that Mia
spends $10,000 a year...

1. Show a consumer’s budget constraint and indifference curves
for soda drinks and slices of pizza. Show the optimal consumption
choice. If the price of soda drinks is $1.50 per can and the price
of a slice of pizza is $2 per slice, what is the marginal rate of
substitution at the optimum?
2. Suppose the income elasticity of demand for food is 0.5 and
the price elasticity of demand is −0.25. Suppose also that Mia
spends $10,000 a year...

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