1. Using neo-classical model of labor-leisure choice to answer the following questions. (
You need to verify your answers using graphs and arguments.)
a. How does an increase in wage rate change the optimal consumption-leisure combination chosen by the worker? State income effect and substitution effect.
b. Suppose the government grants $1000 to women who are completely out of the labor force. If this eligible woman gets a job in labor market, government takes away 50 cents from the cash grant for every dollar earned by the woman. Wage rate in labor market is $10 per hour.
How does this welfare program create work disincentives for women?
(hint: compare optimal choice before and after the program being effective).
Demand refers to the quantity or the goods and services that the rational consumer is willing to purchase in the market at the given time. Demand is not measured in monetary terms. It is measured in units. The demand for a good depends on the willingness of the consumer.
Answer and Explanation: 1
a. The initial optimal consumption-leisure combination of the worker at the initial wage rate W1 if shown by point e. Here the worker worked for H1...
See full answer below.
Become a member and unlock all Study Answers
Start today. Try it nowCreate an account
Ask a question
Our experts can answer your tough homework and study questions.Ask a question Ask a question
Learn more about this topic:
fromChapter 1 / Lesson 16
Explore market surveys. Understand market research and learn the types of survey research methods. Discover various market survey examples and find their types.