This problem considers the decisions of a consumer whose preferences are given by u(C,1)=C+4 lnl, in which C' is the quantity of consumption and I is the quantity of leisure. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with NS as the time spent working (or the labor supply). The main advantage of working is the wages consumers receive. Consumers take wages as given (outside of their control) and obtain wage income equal to wN³. The budget constraint is C wNsT, with π as real dividend income and T as the real = lump-sum taxes paid to government. Suppose w > 4 holds and the wage rate has increased exogenously. Its income effect and substitution effect on leisure are and _, in order. Choose the correct one. - negative, zero zero, negative positive, negative O ambiguous, negative
This problem considers the decisions of a consumer whose preferences are given by u(C,1)=C+4 lnl, in which C' is the quantity of consumption and I is the quantity of leisure. The consumer faces two constraints. The time constraint is given by 1 + N³ = 1 with NS as the time spent working (or the labor supply). The main advantage of working is the wages consumers receive. Consumers take wages as given (outside of their control) and obtain wage income equal to wN³. The budget constraint is C wNsT, with π as real dividend income and T as the real = lump-sum taxes paid to government. Suppose w > 4 holds and the wage rate has increased exogenously. Its income effect and substitution effect on leisure are and _, in order. Choose the correct one. - negative, zero zero, negative positive, negative O ambiguous, negative
Chapter16: Labor Markets
Section: Chapter Questions
Problem 16.2P
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Transcribed Image Text:This problem considers the decisions of a consumer whose preferences are given
by
u(C,1)=C+4 lnl,
in which C' is the quantity of consumption and I is the quantity of leisure. The consumer faces two
constraints. The time constraint is given by 1 + N³ = 1 with NS as the time spent working (or the
labor supply). The main advantage of working is the wages consumers receive.
Consumers take wages as given (outside of their control) and obtain wage income equal to wN³.
The budget constraint is C wNsT, with π as real dividend income and T as the real
=
lump-sum taxes paid to government.
Transcribed Image Text:Suppose w > 4 holds and the wage rate has increased exogenously. Its income effect and
substitution effect on leisure are and _, in order. Choose the correct one.
-
negative, zero
zero, negative
positive, negative
O ambiguous, negative
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