Microeconomic Theory
12th Edition
ISBN: 9781337517942
Author: NICHOLSON
Publisher: Cengage
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Question
Chapter 16, Problem 16.12P
a)
To determine
To find:
b)
To determine
To know:
Equilibrium in pelt market.
c)
To determine
To know:
Equilibrium in pelt market.
c)
To determine
To plot:
Graphical representation of equilibrium in market.
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Consider the following one period model
Consumer
Utility function over consumption (C) and leisure (L)
11
U(CL) = cL3
Total hours H = 50
Labour hours N= H-L
Non-labour income m
Lump-sum taxT
Hourly wage w
Eirm
Production function Y = zF(N) = 2N°
Total tactor productivitiy. z= 5
Government
Government spending (exogenous): G = 30
Suppose that the total factor productivity, z, decreases to 3. What is the income effect of this wage change on labour supply(N
O A 840
B. +6.40
OC. +8.40
D. 6 40
E. None of the above
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.
Consider the following Labour-Leisure Choice model.
Utility function over consumption (C) and leisure (L)
1 3
U(CL) = cL4
Total hours H = 20
Labour hours: N = H-L
Non-labour income: 1 = 20
Lump-sum tax T= 10
Hourly wage w = 3
Suppose that the hourly wage increases to 5 What is the substitution effect of this wage change on labour supply(N)?
A. -1.10
B. -2.10
O C. +1.10
OD. +2. 10
O E. None of the above
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