Consider the following one-period model. Consumer Utility function over consumption (C) and leisure (L) U(C,L)= C^(1/2)L^(1/2) = Total hours: H = 40 Labour hours: = H – L Non-labour income: π Lump-sum tax: T Hourly wage: w Firm Production function: Y = zF() = z Total factor productivitiy: z = 2 Government Government spending (exogenous): G = 20 Suppose that the total factor productivity, z, increases to 5. What is the substitution effect of this wage change on labour supply()? A. +8.51 B. -5.51 C. -8.51 D. +5.51 E. None of the above
Consider the following one-period model. Consumer Utility function over consumption (C) and leisure (L) U(C,L)= C^(1/2)L^(1/2) = Total hours: H = 40 Labour hours: = H – L Non-labour income: π Lump-sum tax: T Hourly wage: w Firm Production function: Y = zF() = z Total factor productivitiy: z = 2 Government Government spending (exogenous): G = 20 Suppose that the total factor productivity, z, increases to 5. What is the substitution effect of this wage change on labour supply()? A. +8.51 B. -5.51 C. -8.51 D. +5.51 E. None of the above
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Consider the following one-period model. Consumer Utility function over consumption (C) and leisure (L) U(C,L)= C^(1/2)L^(1/2) = Total hours: H = 40 Labour hours: = H – L Non-labour income: π Lump-sum tax: T Hourly wage: w Firm Production function: Y = zF() = z Total factor productivitiy: z = 2 Government Government spending (exogenous): G = 20 Suppose that the total factor productivity, z, increases to 5. What is the substitution effect of this wage change on labour supply()? A. +8.51 B. -5.51 C. -8.51 D. +5.51 E. None of the above
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