Ivan faces a labor supply decision. His well-behaved preferences over the two goods "hours of leisure' L and 'consumption' c can be represented by u= 4(L)1/2 +c. He has no non-labor income and can choose how many hours to work at the wage rate u per hour. The price per unit of consumption is p, and his available free time is T hours Let's think about Ivan's "time expansion path" (that is, the analog of the income expansion path a.k.a. income-consumption loci but for changes in T). Sketch it and explain why it has this shape. with reference to Ivan's demand functions

Ivan faces a labor supply decision. His well-behaved preferences over the two goods "hours of leisure' L and 'consumption' c can be represented by u= 4(L)1/2 +c. He has no non-labor income and can choose how many hours to work at the wage rate u per hour. The price per unit of consumption is p, and his available free time is T hours Let's think about Ivan's "time expansion path" (that is, the analog of the income expansion path a.k.a. income-consumption loci but for changes in T). Sketch it and explain why it has this shape. with reference to Ivan's demand functions

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.10P

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Select below the answer that best completes the sentence. When an individual decides to allocate their time between labour and leisure, the opportunity cost of leisure is due to the fact that: O leisure reduces how much time left the individual has for consumption. O every hour of leisure is an hour not earning labour income. O leisure decreases the marginal utility of consumption. O most leisure activities are costly.
Consider Justin who makes $1,400 per week and just won a ‘set for life’ lottery ticket whichinvolves a fortnightly payment of $10,000 for 20 years. Currently he works 35 hours per week. Nowdo the following: • Illustrate the effect of the lottery win on Justins budget constraint using a fully labelleddiagram where i) the horizontal axis represents the hours of free time per week, and ii) thevertical axis represents Justins weekly consumption. • Illustrate on the same diagram Justins optimal decisions before and after the lottery winalong with his indifference curves. • Based on your diagram, discuss whether Justin will quit his job.
Juan is currently working in a job that pays $25 an hour and he chooses to work 8 hours per day. Assume that Juan can work a maximum of 16 hours a day, and he has complete flexibility in how many hours a day he works. Illustrate Juan’s budget constraint and his optimal choice of consumption and leisure. What is the slope of his budget constraint? What does this slope represent? (As on any graph you draw, make sure that you label the axes, the intercepts and the optimal choice.) Juan begins receiving a government transfer payment of $100 per day. Add his new budget constraint to your graph in (a) and show his new optimal choice. Does he choose more or less consumption? More or less leisure? Explain why for both goods. The government imposes a tax of 25% on Juan’s earnings from work and increases his government transfer to $150 per day (the government transfer payment is not taxed.) Redraw the budget constraint from part (b) (omit the part (a) budget constraint), and add a new budget…
Prunella raises peaches where L is the number of units of labor she uses and T is the number of units of land she uses. Her output is f(L,T) = LT bushels of peaches. Currently, the cost of land is 8, the wage for labor is 9, and the price of peaches is 10. Prunella is currently maximizing her profits. Which occurences would cause the quantity of labor used to decrease? O An increase in the price of peaches O A increase in the price of labor O An increase in the Marginal Product of Labor O All of the above
Elsa lives alone on an island with two goods, bananas and fresh water. Her utility function is U = 4BW where B is the amount of bananas she consumes and Wthe amount of water. Her production function for bananas is B=Lg where Lg is the amount of labour time she devotes to bananas. Her production function for water is W = Lwwhere Lwis the amount of labour time she devotes to water. If the total time she has available is 70, what should she do to maximize her utility? (Enter your answers in whole numbers.) LB= Lw=[
Relate the concept of marginal rate of substitution back to the idea of willingness to pay and economic return. In particular... If my MRS2 for1|> ERS2 for 1| can I receive additional economic return by reallocating by budget away from one commodity and towards another? If so, how? Why? Please include a diagram in your answer.
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Suppose that John could work 365 days per year and could earn $200 per day for each day he worked. Draw his budget lines with respect to his labor-leisure choice.
A worker views leisure and income as “goods” and has an opportunity to work at an hourly wage of $15 per hour. a. Illustrate the worker’s opportunity set in a given 24-hour period. b. Suppose the worker is always willing to give up $11 of income for each hour of leisure. Do her preferences exhibit a diminishing marginal rate of substitution? How many hours per day will she choose to work?
What is your marginal rate of substitution of $1 bills for $5 bills?
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