HRS-GLF - MP1 MP2 Marginal Disutility of Effort L1 L2 L3 L4...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Marginal Product MP1 MP2 Marginal Disutility of Effort (MDE) L1 L2 L3 L4 MP1 is the marginal product of labor MDE is the marginal disutility of work effort With no tax, L3 effort is supplied and grain production is the area 0ABL3 D
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Marginal Product MP1 MP2 Marginal Disutility of Effort L1 L2 L3 L4 D Under the GLF, the tax is CD. L2 units of effort is supplied and workers keep the quantity ACL2 – Q1Q2CD for themselves. Output L2CBL3 is not produced. Deadweight loss is DCB.
Background image of page 2
Marginal Product MP1 MP2 Marginal Disutility of Effort L1 L2 L3 L4 D Under the HRS, the lump-sum tax collected is Q1Q2CD. L3 effort is supplied. Production is 0ABL3. Workers retain 0ABL3 – Q1Q2CD
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Marginal Product
Background image of page 4
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: MP1 MP2 Marginal Disutility of Effort L1 L2 L3 L4 D E Under HRS if workers find a way to increase productivity to MP2, tax rate would increase to DE. Work effort would fall to L1. If workers overstated production, tax rate would increase to DE. MP MDE L Q L0 L1 Lump Sum Tax Current situation: MDE curve is horizontal up to L1 indicating a corner solution for work effort. In other words, at a rate of pay equal to MP0, L1 effort is supplied, but only L0 is employed. At a pay less than MP0, no effort is supplied. Rural unemployment equals L1 L0 MP0 Marginal Product MP1 MP2 Marginal Disutility of Effort L1 L2 L3 L4...
View Full Document

This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

Page1 / 6

HRS-GLF - MP1 MP2 Marginal Disutility of Effort L1 L2 L3 L4...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online