LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 2, Problem 9P
(a)
To determine
Compare the life cycle path of hours of work between the two workers P and B, when B receives a one-time unexpected inheritance at the age of 35.
(b)
To determine
Compare the life cycle path of hours of work between the two workers P and B, if B is always aware that the he would receive a one-time inheritance at the age of 35.
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What is two factors that may influence the shape of individuals’ indifference curves (flat or steep) which reflect their preferences for work or leisure?
What is the difference between income effect and substitution effect under the basic work-leisure decision model?
Jeff, Alan, and Katie all work for the same employer at an hourly wage rate of wo-$24.
All three of them have T=100 hours of weekly time endowment and non-labor income of IN=$0. Their
preferences over consumption and leisure are as follows:
= cl²
Jeff: U (c, l)
Alan: U(c, l) = min {c, 241}
Katie: U(c, l) = c +221
Based on the consumption-leisure model, solve for Jeff, Alan, and Katie's optimal
consumption and leisure choices: (c†, lj), (C‚ lå), and (ck, lk), respectively. For each worker,
graphically illustrate their optimal consumption and leisure choices by drawing the indifference
curve and budget constraint and labeling their respective optimal bundle (use separate graphs for
each worker). What are the optimal working hours for each worker?
(i) Keith’s marginal utility of leisure is C – 20 and his marginal utility of consumption is L – 50. There are 110 hours in the week available to split between work and leisure. Keith receives £250 of welfare payments each week regardless of how much he works (assume he spends all of his welfare payments on consumption). What is Keith’s reservation wage?
(ii) Suppose Danny receives the same welfare payments each week as Keith and has the same number of available hours (110). However, Danny’s indifference curve is flatter than Keith’s. How would his reservation wage compare to Keith’s? Why?
Chapter 2 Solutions
LABOR ECONOMICS
Ch. 2 - Prob. 1RQCh. 2 - Prob. 2RQCh. 2 - Prob. 3RQCh. 2 - Prob. 4RQCh. 2 - Prob. 5RQCh. 2 - Prob. 6RQCh. 2 - Prob. 7RQCh. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Prob. 10RQ
Ch. 2 - Prob. 11RQCh. 2 - Prob. 12RQCh. 2 - Prob. 1PCh. 2 - Prob. 2PCh. 2 - Prob. 3PCh. 2 - Prob. 4PCh. 2 - Prob. 5PCh. 2 - Prob. 6PCh. 2 - Prob. 7PCh. 2 - Prob. 8PCh. 2 - Prob. 9PCh. 2 - Prob. 10PCh. 2 - A worker plans to retire at the age of 65, at...Ch. 2 - Prob. 12PCh. 2 - Prob. 13PCh. 2 - Prob. 14PCh. 2 - Prob. 15P
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