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Econ 339 Winter 2008 Problem Set 1

Econ 339 Winter 2008 Problem Set 1 - $37.50 an hour for the...

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Econ 339 Winter Quarter 2008 Problem Set 1 Due Date: 1/16/2008 Solve the following Problems. Show your work. 1. Book Problems (p. 66): 1, 2 ,3 ,10 2. Illustrate the effect of a wage decrease that leads to an increase in hours worked by an individual graphically. In your graph, show the income and the substitution effects. 3. Most real estate transactions pay realtors a commission of 6 percent of the sale of a property, of which 2 percentage points is paid to their real estate office. This translates to $25 an hour for the average realtor. Recently, however, a firm called TREX has adopted a system whereby the realtor pays the firm $50 a day upfront for use of the company's name, but the realtor keeps the full 6 percent commission or
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Unformatted text preview: $37.50 an hour for the average realtor. a. Draw two budget constraints on the same graph for the average realtor working for TREX and the "standard" real estate firm if there are 20 hours in the day to work or leisure and non-labor income is equal to zero. b. There has been much complaining from "standard" real estate firms that TREX has hired all of the "good" realtors. Use your graph in (A) to show that realtors who originally worked more than four hours a day for a standard firm would prefer working for TREX. c. Use the concept of income and substitution effects to explain why realtors work more hours for TREX than for standard firms....
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