1. Using neo-classical model of labor-leisure choice to answer the following questions. (You need...
Question:
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:
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
Become a Study.com member to unlock this answer! Create your account
View this answera. 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.
Ask a question
Our experts can answer your tough homework and study questions.
Ask a question Ask a questionSearch Answers
Learn more about this topic:
Get access to this video and our entire Q&A library
What is a Market Survey?
from
Chapter 1 / Lesson 16
11K
Explore market surveys. Understand market research and learn the types of survey research methods. Discover various market survey examples and find their types.
Related to this Question
- Using neo-classical model of labor-leisure choice to answer the following questions. (You need to verify your answers using graphs and arguments.) How does an increase in wage rate change the optimal
- If leisure is a normal product do the substitution and income effects of a change in wage rate reinforce each other. If there are any graphs that could also help answering this question please provide
- When wages increase, will the typical person work more or less? Explain your answer using microeconomic theory. (Note: The substitution and income effects for leisure demand are an important part of this discussion. You may have to do some outside researc
- Using the Labour-Leisure Choice diagram, explain why increases in the real wage at some point result in decreasing working hours
- Provide a graph (work - leisure model) for when the wage rate increases and the substitution effect is the same as the income effect . And would a worker be incentivized to work more or less.
- Using a graph of the classical labor market, illustrate the effects of a real wage existing in the market that is lower than the equilibrium real wage. What will eventually happen in this labor market
- Using the labor market, production function. and AS/AD graphs of the classical model, show the effects of an increase in the labor supply. What are the effects on real wages, the quantity of labor, r
- Use the graph depicting a hypothetical economy to answer the questions. a) What is the natural rate of unemployment? b) What is the expected inflation rate? c) Adjust the graph to demonstrate the impa
- Use graphs and arguments to answer the following questions. (a) What happens to wages and employment if the government imposes a payroll tax on a non-discriminating monopsonist? Compare the response
- The classical view of economics describes how 1) increases in the wage rate cause unemployment 2) sticky prices create profit opportunities for firms in the short run 3) prices and wages adjust immead
- Answer questions in detail and graph any explanations: 1. What will happen to the income of labor currently making minimum wage hourly rate increase? Will all, some, or none of this labor earn a highe
- If leisure is a normal product, do the substitution and income effects associated with a change in the wage rate reinforce each other? Explain your answer.
- If leisure is a normal good, then the income and substitution effects of a wage change will have opposing effects on hours worked. Support your answer with an appropriate diagram and by using the Slut
- Graph a work leisure model when a wage rate decrease and substitution effect dominates the income effect.
- Assume an ordinary economic model of downwardly-sloped indifference curves and daily income-leisure constraints. Assume that the wage rate is raised from $10 per hour to $20 per hour. Graphically, explain the income and substitution effects with the follo
- Provide a graph (work - leisure model) for when the wage rate decreases and the income effect dominates the substitution effect.
- A business cycle fact is that real wages are pro-cyclical. Using the classical labor market, show and explain how the classical economists explained this business cycle fact. Be sure to draw and refer to a completely labeled labor market diagram and produ
- Which of the following options is correct? According to the substitution effect, an increase in the wage rate will lead the worker to A. work more hours if leisure is a normal good. B. work more hours if leisure is an inferior good. C. work fewer hours if
- in the classical model, the increased willingness of women to enter the workforce had most likely lead to what outcome in the labor market? a)an increase in labor demand and higher real wages b)an i
- BEFORE ANSWERING QUESTIONS AND GRAPHING: **Assume the economy is at equilibrium** Part 1: What will happen to businesses when they are required to pay the higher hourly wage rate? (due to a minimum wa
- Assume that all prices and wages are perfectly flexible so that the economy is characterized by the Classical model. Create an IS-LM-FE and AS-AD graph to illustrate the effect of the problems below.
- The efficiency wage model of unemployment is an adaptation of the supply and demand model of a market. In graphical form, it is illustrated like this: Answer the following three questions to describe, in formal mathematical language, the relationship betw
- In a perfectly competitive labor market, what will be the impact of an increase in labor productivity on equilibrium wages and employment? Design a diagram to support your answer.
- Assume that the graph to the right models the labor market for electricians. Assume that the electrician\'s union is able to raise their member\'s wages from P0 to P1. Select the correct answer from t
- A) In the classical model, if there is a decrease in capital stock, what are the effects on labor demand, real wages, and output? (Increase or decrease) B) What are the effects if population decreases?
- If real wages fall as output rises, then in the classical model it has to be the case that: a. labor demand rose b. labor demand fell c. labor supply rose d. labor supply fell e. none of the above
- Evaluate the following statement using a work-leisure model: "The income effect of any given wage increase is larger for individuals who are currently working many hours than it is for those who are currently working few or no hours."
- (Income substitution effects) Draw a labor/ leisure tradeoff diagram showing a case where the wage rate decreases and the net effect was a decrease in hours worked. (Hint: it is easier to "rig" your g
- The following graph represents a hypothetical equilibrium for labor market for fast food workers. Which of the following may occur if the employers must start paying a minimum wage of above $5? Select
- Graphically illustrate (using the WS and PS relations) and explain the effects of an increase in the minimum wage on the equilibrium real wage, the natural rate of unemployment, the natural level of e
- Which of the following statements is true? a. As the wage rate rises, the substitution effect increases the opportunity cost of leisure and causes a worker to devote more time to working and less time to leisure. b. As the wage rate rises, the substitutio
- (i) Use a simple labour/leisure choice diagram for an individual who has no unearned income and faces an offered wage of W to illustrate her labour supply decision when she chooses to work a positive
- 1. Why may a household's labor supply curve bend backwards at some wage rate? A. The household substitutes labor for leisure. B. The household substitutes leisure for labor. C. Employers demand few
- Labor Supply a. Assume that leisure and consumption are both normal goods. Derive the labor supply curve in the case where substitution effect is larger than the income effect. What is the relationshi
- Using the WS and PS relations, graphically illustrate and explain the effects of an increase in the markup and the effects of an increase in the minimum wage on the equilibrium real wage, the natural
- Refer to the labor demand-supply graph to answer the following questions. Suppose the Congress passes a law requiring employers to provide benefits like healthcare that raises the cost of an employee by $4.
- Using the tradeoff between income and leisure, explain how to derive the supply of labor in the market as a function of the real wage (w/p).
- What is true for those for whom leisure is a normal good? A. The labor supply curve always slopes down. B. The income effect of a wage change always moves in the opposite direction from the substitution effect. C. The labor supply curve always slopes up.
- Check each of the following that is true concerning the supply of labor or leisure. A. When the substitution effect is greater than the income effect, wages increase the supply of labor. B. The substitute effect has the same impact on the worker as the in
- Increases in non-labour income? A) increase labour supply because leisure is considered to be a normal good. B) decrease labour supply because leisure is considered to be a normal good. C) increase labour supply because leisure is considered to be an i
- A backward-bending labor supply curve implies that: a. The substitution effect of the change in the wage dominates the income effect at lower wage rates but not at higher wage rates. b. The substituti
- Graphing: Assuming a normal competitive market what will happen in the market for steel if worker wages increase, holding everything else constant. Show the graph, label all relevant points, and expl
- Check each of the following that are true concerning the supply of labor or leisure. a. When the substitution effect is greater than the income effect, wages increase the supply of labor. b. The substitute effect has the same impact on the worker as the i
- Answer the following questions with explanations based on the Labor Economics knowledge: a) Does the effect of minimum wage depend on the elasticity of labor demand? Is the long run effect larger tha
- According to the income effect of labor supply, if leisure is a normal good, then an increase in the wage rate will ________ the quantity of labor ________. A) increase; supplied B) decrease; demanded C) increase; demanded D) decrease; supplied
- As some people's per hour wages go up, they may actually choose to work less and leisure more. Explain whether this is rational economic behavior.
- If a binding minimum wage were now imposed: Question 2 options: A.) The wage rate would decrease. B.) Fewer workers would be hired. C.)There would be a labor surplus D.)There would be a labor shortage
- Draw the labor market decision with appropriate budget line when the wage rate is $10 and they have 16 hours a day to devote to labour and leisure. Draw a utility maximizing choice in the centre of t
- Using the Wage Setting and Price Setting relations, graphically illustrate and explain the effects of a reduction in the minimum wage on the equilibrium real wage and the natural rate of unemployment.
- Which of the following will shift a worker's labor supply curve to the left? a. Higher nonlabor income. b. A lower wage rate, assuming the substitution effect dominates the income effect. c. New machinery that substitutes for labor and lowers its margi
- If an individual earns an overtime pay for over 8 hours of work, then how can this be depicted in the standard income-leisure model? In case of higher wages for overtime work is the theory of backwar
- According to the classical model of macroeconomic equilibrium, a. a decrease in aggregate demand will not cause nominal wages to decline. b. the economy does not have a self-correction mechanism to cure recessions. c. wage rigidity will result in a length
- Unemployment does not exist in the classical model because [{Blank}]. Therefore, updated versions of the classical model that allow for unemployment can only explain fluctuations in [{Blank}]. A) the classical model assumes that the full-employment is det
- In the classical macroeconomic model, a decrease in the real wage would cause A)a decrease in the marginal product of labor and an increase in the quantity demanded for labor. B)an increase in the m
- The labor-supply curve slopes upward if: a) leisure is a normal good. b) consumption is a normal good. c) the income effect on leisure is greater than the substitution effect. d) the substitution effect on leisure is greater than the income effect.
- According to real business cycle theorists, A) price and wage rigidity explain most changes in output. B) fiscal policy explains most changes in output. C) efficiency wage theory explains wage rigidity. D) changes in output primarily represent changes
- Compute equilibrium values for the real wage and employment and illustrate this equilibrium on a labor market diagram based on the following assumptions.
- Evaluate the following statement using a work-leisure model: "Given the wage rate, an individual will always prefer a job in which the worker, as opposed to the employer, selects the number of hours worked."
- An increase in the wealth of some workers will cause the labor supply curve associated with those workers to: a) Be backward-bending if the income effect outweighs the substitution effect of a change in wealth, and leisure is a normal good, b) Be downwar
- Explain how a decrease in non-labor income affects hours of work. Support your answer with a graph, and provide an explanation.
- Will a reduction in income taxes cause all workers to put in more hours on the job? Use a backward-bending labor supply curve to illustrate your answer.
- Classical model a. Draw IS-LM-FE, AS-AD, and labor market graphs. Label initial equilibrium points assuming the economy is initially at full employment. b. Assume that there is a decrease in current
- In the classical model, high unemployment due to either a demand or a supply shock _______. (a) will return to its normal level quickly as wages adjust (b) will persist if due to a supply shock but not if due to a demand shock (c) can persist for an indef
- Demand for labor is decreasing for any given real wage. a. Explain two reasons why an economy might see a decrease in the demand for labor. b. Using the relevant graphs, show and explain the effect on wage, employment, unemployment, and potential GDP. c.
- A primary assumption of new classical economics is: A) wages and prices are not flexible B) an upward sloping aggregate demand curve C) over the long-run, the economy will operate at the natural rate of unemployment D) all of these answers are correct
- A backward-bending labor supply curve occurs when a. the substitution effect of a wage increase equals the income effect. b. a negatively sloped labor supply curve is not possible. c. the substitution effect of a wage increase is greater than the income e
- If the labor supply and demand curves cross at a wage of $20: A. a wage rate of $10 per hour would lead to an excess demand for labor B. a wage rate of $10 per hour would lead to an excess supply of labor C. that wage causes a high rate of cyclical unempl
- Graph the following labor supply curves: a. The substitution effect dominates the income effect until the wage reaches $200, after which the income effect dominates. b. The income and substitution e
- Assume that the market supply curve for labor curve is upward-sloping. Which of the following statements explains why this could occur? a) As the wage rises, most workers want to work fewer hours. b)
- If nonmarket work is a normal good, then an increase in income [{Blank}] the time allocated to [{Blank}]. A) decreases; market work B) decreases; leisure C) increases; market work D) increases; leisure E) increases; nonmarket work
- The efficiency wage model of unemployment is an adaptation of the supply and demand model of a market. In graphical form, it is illustrated like this: Why does unemployment exist, according to this model? Why doesn't the market adjust to an equilibrium in
- 1. A rightward shift in the demand curve for labor will have which effect on equilibrium wages and employment? a) Increase equilibrium wages and employment b) Decrease equilibrium wages and employme
- Explain what an increase in capital and/or technology does to wages, equilibrium full employment, productivity, and standard of living. Show this shift in a production function graph and labor supply graph drawn together one above the other.
- The compensate labor supply curve: A)will always be vertical B)will always be upward sloping C)will always be downward sloping D)reflects both the income and substitution effects of wage changes
- If the labor supply curve shifts to the right and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? 1) Graph a new labor supply curve that has shifted to the right as described abov
- Suppose a minimum wage is set at a level above the equilibrium wage. Which of the following describes the unemployment created that is associated with movement along the demand curve for labor? a. workers who used to work, but are laid off b. individuals
- Why might the labor supply curve be backward bending? Show graphically considering the income and substitution effect with increasing wages. Why might the possibility of a backward bending labor suppl
- Question 3) Part A) What is meant by a ?Compensating wage differential?? Suppose all workers in a hypothetical economy are homogeneous (in all aspects). Explain using a diagram why no wage differenti
- Consider the labor market illustrated in the figure below, where the market equilibrium wage is W_1 and equilibrium employment is L_1. Suppose the opportunities in other labor markets increase. Show the effects of the change in the labor market by drawing
- Consider how a decrease in wage will change a workers labor supply. Make two clearly labeled diagrams showing how reducing a worker's wage affects the hours s/he is willing to work: one in which the i
- The backward bending supply curve is characterized by which of the following? A. As wage rates rise, the quantity of labor supplied continues to rise at every wage rate increase B. The labor-leisure trade-off continues to favor the supply of more jobs, or
- The elimination of cyclical and structural unemployment as a result of flexible prices and wages correcting themselves would be A. Keynesian. B. classical. C. monetarism. D. supply-side. E. rational expectations.
- A backward-bending labor supply curve occurs when A. the substitution effect of a wage increase equals the income effect. B. the substitution effect of a wage increase is greater than the income effect. C. the income effect of a wage increase is greater t
- Suppose the labor supply curve is given by L^s = 40 - w^1/3 where L^s is hours worked. At wage = 27, does the income or substitution effect dominate?
- For each group identified below, use the labor-leisure choice model to illustrate graphically and then explain the change in the quantity of leisure desired. Be sure to explain how the group's labor f
- In the classical macroeconomic model, a decrease in the real wage would cause A) a decrease in the marginal product of labor and an increase in the quantity demanded for labor. B) an increase in the marginal product of labor and an increase in the quant
- Suppose there is an improvement in technology, then our model predicts A. supply of labor will increase and the real wage will fall. B. equilibrium employment may fall, rise, or stay the same becaus
- The elimination of cyclical and structural unemployment as a result of flexible prices and wages correcting themselves would be Keynesian. classical. monetarism. supply-side . rational expectations.
- The effect of a wage causes individuals to substitute. A. substitution, higher; labor for leisure B. income; higher; labor for leisure C. substitution; lower; labor for leisure D. complementary; constant; leisure for labor
- An increase in the minimum wage will tend to cause which of the following to occur? a. A leftward shift in the demand for labor b. A reduction in the unemployment rate c. An increase in the size of the surplus of labor d. A rightward shift in the suppl
- State two ways the labor supply curve shifts to the right. Explain how each way impacts the output, productivity, and standard of living in the economy. Include the formulas for productivity and standard of living in your answer.
- When the wage rate rises, a worker chooses to replace some leisure hours with work hours, even if he would remain equally well off. This phenomenon is known as: a. compensating differential. b. the income effect. c. the substitution effect. d. intertem
- Why is the supply curve of labor usually upward sloping? a. As the wage increases, the opportunity cost of labor increases, causing individuals to devote more time to work, b. As the wage increases, purchasing power increases, causing individuals to devot
- In a monopsony model of a labor market, as more labor is hired, the marginal factor cost of labor: a. rises. b. is constant. c. is zero. d. decreases.
- Consider the graph at right for a monopsonistic labor market. The competitive wage is $750.00 and the competitive labor use is 250.00 workers. In a monopsonistic labor market, the amount of labor used will be 166.7 workers and the wage will be $ _________
- Suppose a minimum wage is set at a level above the equilibrium wage. Which of the following describes the unemployment created that is associated with movement along the supply curve of labor? a. workers who used to work, but no longer can find employment
- if a worker chooses to work less when the wage rate rises, leisure is a(n): a. Giffen good b. Ordinary good c. normal good d. inferior good
- A rise in the real wage rate: a. shifts the labor supply curve leftward. b. does not shift the labor demand or labor supply curve. c. shifts the labor demand curve rightward. d. shifts the labor demand curve leftward.
- Illustrate the effect of a rise in the natural rate of unemployment on both the short-run and long-run Phillips curves. Give the economic reasoning to support your answer.
- According to Neoclassical theory, what happens in the labor market when the wage rate is higher than the equilibrium wage?
Explore our homework questions and answers library
Browse
by subject