Question

3. Suppose Jack’s wage rate is $20 and that he can produce $10 per hour of household “goods”. Suppose Jill’s wage rate is $30 and that she can produce $15 per hour of household “goods”. Who should specialize in the market sector? Suppose now, Jack’s wage goes up to $25 per hour. How does this affect the answer?

4. Suppose the government grants $2500 per child to households that have more than 2 children. How would this affect fertility?

Answer #1

3. Suppose Jack’s wage rate is $20 and that he can produce $10
per hour of household “goods”. Suppose Jill’s wage rate is $30 and
that she can produce $15 per hour of household “goods”. Who should
specialize in the market sector? Suppose now, Jack’s wage goes up
to $25 per hour. How does this affect the answer?

1. Continuing from the questions on Homework 1, suppose the
following Earned Income Tax Credit (EITC) scheme is put in place.
For those whose earned income is less than $500 per week the
government gives 40 cents on every dollar earned. For those who
earn more than $500 the government gives them $200 per week. Based
on the answers to question 2 of the first homework (i.e. ignore
overtime), how does this affect the labor supply and earnings of
Johnny...

Jenny has preferences given by the utility function U(C; L) = C
2L so that the slope of her indi§erence curve is C 2L : Johnny has
the same preferences we saw in the class example (i.e. U(C; L) = CL
so the slope of his indi§erence curve at any point is C L
1.Continuing from the questions on Homework 1, suppose the
following Earned Income Tax Credit (EITC) scheme is put in place.
For those whose earned income is...

4. Suppose the government grants $2500 per child to households
that have more than 2 children. How would this affect
fertility?

Wage rate is $10 per hour for a consumer, and he is choosing
earning of $10 per hour and taking leisure of 1 hour together.
a. Derive the mathematical equation and
draw the corresponding graph for daily income-leisure
constraint.
b. Draw the corresponding indifference
curve between earning and leisure.
c. How many hours will this
consumer work and how much will this consumer earn?

Suppose that the government raises the permissible minimum wage
to $15 per hour.
Which of the following describes a secondary effect that will
likely result from this action?
a The rise in the minimum wage will lead to a reduction in the
employment of low-skill workers.
b The rise in the minimum wage will lead to a drastic fall in
the poverty rate in the country.
c The rise in the minimum wage will improve the training
opportunities available to...

Number of Workers
Pizzas per hour
VMP
1
10
2
15
3
18
4
20
a. Cooks in this market earn an average wage of $15 per
hour. At this wage, how many workers will Penny hire?
b. What wage would Penny pay if she was going to hire
all 4 workers?
c. Why will the wage rate go down as Penny hires more
workers?

Sarah has the following utility function and has a market wage
of $10 per hour, and can work upto 2000 hours per year.
U = 100* lnC + 175* lnL ; Where C is the consumption and L is
the leisure
A) Determine the utility maximizing levels of C and L for Sarah.
Also, determine the corresponding maximum level of utility of
Sarah.
Now assume that she is subject to a TANF program that features a
benefit guarantee of $5000...

Suppose a single parent can work up to 16 hours per day at a
wage rate of $10.00 per hour. Various income maintenance programs
have been developed to assure a minimum level of income for
low-income families. Aid to Families with Dependent Children (AFDC)
was established with the Social Security Act of 1935. The family
was given an income subsidy depending on family size. Under this
program, the family’s benefit was reduced by $1 for every dollar
earned. Suppose the...

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...

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