Consider the lifecycle model of labour supply with multiple periods. Assume that the utility function in each period is the same thus preferences for leisure and consumption are constant over time. Individuals aim to maximise lifetime utility and are able to save and borrow. If individuals know that the wage in period 1 (w1) will be lower than the wage in period 2 (w2), we expect that they will work [Select] hours in This bab

Consider the lifecycle model of labour supply with multiple periods. Assume that the utility function in each period is the same thus preferences for leisure and consumption are constant over time. Individuals aim to maximise lifetime utility and are able to save and borrow. If individuals know that the wage in period 1 (w1) will be lower than the wage in period 2 (w2), we expect that they will work [Select] hours in This bab

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6. A worker with a marginal value product of can earn w, = k√e in self- employment. Marginal value products vary across the population according to the uniform distribution, i.e., 0~U[0, 2]. Firms cannot measure individual productivity, so all workers are paid a wage equal to the average of the marginal value products of those employed. & (a Find the condition for k under which every worker will choose self- employment. Also, find the condition for k under which all the workers will choose to be employed. Assume that k = 1. And, each worker can take a free test which can only te whether his marginal value product is in [0,1] or in [1,2]. Who will take the test and who will not? Also, who will be'self-employed and who will be employed? (c) Assume that k = 1. And, each worker can take a test at the expense of c which can reveal his marginal value product exactly. Who will take the test and who will not? Also, find the condition for c under which there exist some workers who will choose…
d. Based on both the consumption-leisure optimality condition obtained in previous part (Based on both of the two first-order conditions, construct the consumption-leisure optimality condition) and on the budget constraint, qualitatively sketch two things in a diagram with the real wage on the vertical axis and labor on the horizontal axis. First, the general shape of the relationship between w and n (perfectly vertical, perfectly horizontal, upward-sloping, downward-sloping, or impossible to tell). Second, how changes. in / affect the relationship (shift it outward, shift it inward, or impossible to deter mine). Briefly describe the economics of how you obtained your conclusions.
Then consider an individual with the exact same preferences (same indifference curve map as in the previous question) and skills, but this person happened to have a better connection with a company and is earning a higher wage than the individual in part 'a'. Thus, this person faces budget line BL' below and takes l'hours of leisure (works T - l'hours). C 50 BL l' O Keep leisure the same T Then this individual is offered the same take-it-or-leave-it (TIOLI) cash grant of $g (that must be forgone if this person works at all). What would this individual do (in terms of leisure taken (and labor supplied))? O Take no leisure 151515 O Take more leisure, but not as much at T. ولا O Take all leisure (not work at all) O None of the other options.
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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QUESTION 1 For the production function Q = KO.2L0.1 and the budget 133 = 7K + 5L find the optimal employment of L. Please enter your response as a positive number with 1 decimal and 5/4 rounding (e.g. 1.15 1.2, 1.14 = 1.1).
Effort Investment Risk Farmer's ownership Fixed land rental Sharecropping Farmer E's production function is 20 x VI (Y is the final output, Lis labor input) Y = According to theory, E's effort will be the lowest under which ownership? ( you should be able to answer this question without calculation ) According to theory, E will be facing the lowest level of risk under which land ownership? Why? Assuming E is working under a fixed land rental contract, with a yearly rent of 50. His twin brother F, who has exactly the same production function, is working with a different landlord who charges 20% of the yearly revenue. • (calculation) What is farmer E's profit function? • (calculation) What is his brother F's objective function? • How is the optimal effort defined? (only explain the concept) • (calculation) How much labor would E invest in his land (He knows exactly how his profit function looks like ) ? How much profit could he make under optimal effort? Assume his twin brother F doesn't…
Consider the two-period household-maximization model discussed in class. The model is modified in order to look at applications including credit constraints, interest-rate markups, and taxation. A representative household lives for two periods and maximizes utility of consumption in period 1 and in period 2. The utility is represented by log(c) where c denotes consumption. Assuming no discounting between period 1 and period 2. The maximization problem for the representative household can be written as a) Explain what is meant by a representative household. Briefly explain the budget constraints of the representative households and of the government. Explain the role played by the assumption that the representative households lives for only two periods and the assumption of “no discounting”.
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The following picture represents the impact of a change in total factor productivity. What happens to the real wage going from A to B? PPF2 B PPF1 12 (0,0) Leisure, / PPF3 -G O It's constant O It's decreasing O It's increasing O Not enough information Consumption, C