Explain and illustrate in a diagram what is meant by "income effects" an effects" of a wage rate change. Explain and illustrate how you would model the labour supply decision of her. Do you agree that the wage increase will increase the labour supply in the y outline the assumptions underlying your argument.
Explain and illustrate in a diagram what is meant by "income effects" an effects" of a wage rate change. Explain and illustrate how you would model the labour supply decision of her. Do you agree that the wage increase will increase the labour supply in the y outline the assumptions underlying your argument.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
part B C
![2. Answer all parts (a) (c) of this question.
(a)
Consider an agent whose preferences over any couple (x1, x2), where 2₁ ER+
and x2 € R+, e.g., apples and oranges, is such that she prefers the bundle that is closest to
having the same number of apples and oranges. Write a utility function u: R² → R+ which
represent these preferences.
A politician remarks "Our recent increases in the wage rates of teachers has been a total suc-
cess! The shortage of teachers has been reduced drastically. Another, similar wage increase
should eliminate this shortage entirely"
(b)
Explain and illustrate in a diagram what is meant by "income effects" and
"substitution effects" of a wage rate change.
(c)
Explain and illustrate how you would model the labour supply decision of a
potential teacher. Do you agree that the wage increase will increase the labour supply in this
case? Carefully outline the assumptions underlying your argument.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8a7f7113-0b3f-40a1-8d39-8324bf9c1496%2F10903905-e8d7-408d-bc23-36ee96f4f4be%2Fy0pdxbq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Answer all parts (a) (c) of this question.
(a)
Consider an agent whose preferences over any couple (x1, x2), where 2₁ ER+
and x2 € R+, e.g., apples and oranges, is such that she prefers the bundle that is closest to
having the same number of apples and oranges. Write a utility function u: R² → R+ which
represent these preferences.
A politician remarks "Our recent increases in the wage rates of teachers has been a total suc-
cess! The shortage of teachers has been reduced drastically. Another, similar wage increase
should eliminate this shortage entirely"
(b)
Explain and illustrate in a diagram what is meant by "income effects" and
"substitution effects" of a wage rate change.
(c)
Explain and illustrate how you would model the labour supply decision of a
potential teacher. Do you agree that the wage increase will increase the labour supply in this
case? Carefully outline the assumptions underlying your argument.
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