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 consumption-leisure combination chosen by the worker? State income effect and substitution effect.
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).
Imperfect competition has different number of buyers and seller and the price level is not unique at the various demand levels. Imperfect markets have some properties same as the perfect competitive market. Product discrimination may also exist in the imperfect competition which affects the price level and resource allocation.
Answer and Explanation: 1
a. Wage rate increased
In the neo classical model, the labour supply curve is backward bending. The initial wage rate is W1 and working hours...
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fromChapter 5 / Lesson 4
Learn about wage growth vs. inflation. Discover examples of how to adjust for inflation, and examine criticisms of how wages are adjusted for inflation.