Assume that the individual has a utility function given by U(I, x) = 0.5 In(1) + 0.5 In(x), with px = 1, T = 16, and Y = 32. There are no taxes on labor earnings (for simplicity). (a) What is the individual's reservation wage in this case? (b) If the individual is offered a wage of w = 12, how many hours of leisure does she consume? (c) There is a new government policy designed to provide transfers to individuals with low consumption. All individuals with a total in- come (i.e., non - labor and labor income) no more than 82 dollars are given a transfer of 50 dollars. What is this individual's labor supply decision in this case?
Assume that the individual has a utility function given by U(I, x) = 0.5 In(1) + 0.5 In(x), with px = 1, T = 16, and Y = 32. There are no taxes on labor earnings (for simplicity). (a) What is the individual's reservation wage in this case? (b) If the individual is offered a wage of w = 12, how many hours of leisure does she consume? (c) There is a new government policy designed to provide transfers to individuals with low consumption. All individuals with a total in- come (i.e., non - labor and labor income) no more than 82 dollars are given a transfer of 50 dollars. What is this individual's labor supply decision in this case?
Chapter10: Cost Functions
Section: Chapter Questions
Problem 10.10P
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Transcribed Image Text:Assume that the individual has a utility function given by U(I, x) =
0.5 In(1) + 0.5 In(x), with px = 1, T = 16, and Y = 32. There are no
taxes on labor earnings (for simplicity).
(a) What is the individual's reservation wage in this case?
(b) If the individual is offered a wage of w = 12, how many hours of
leisure does she consume?
(c) There is a new government policy designed to provide transfers to
individuals with low consumption. All individuals with a total in-
come (i.e., non - labor and labor income) no more than 82 dollars are
given a transfer of 50 dollars. What is this individual's labor supply
decision in this case?
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