Tut1(Jan15) - in lump-sum tax will increase the amount of labor supplied b Suppose T = 35 What are the equilibrium values of employment and real

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 291: Canadian Macroeconomic Policy Tutorial #1 (week of Jan 15) 1. Use the concepts of income effect and substitution effect to explain why a temporary increase in the real wage leads to an increase in the amount of labor supplied, while a permanent increase in the real wage may have no effect on the quantity of labor supplied. 2. Consider an economy in which the marginal product of labor is MPN = 309 – 2N, where N is the amount of labor employed. The amount of labor supplied is given by N S = 22 + 12w + 2T, where w is the real wage, and T is a lump-sum tax levied on individuals. a. Use the concepts of income and substitution effects to explain why an increase
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: in lump-sum tax will increase the amount of labor supplied. b. Suppose T = 35. What are the equilibrium values of employment and real wage? c. With T remaining equal to 35, the government passes minimum wage legislation that requires firms to pay a minimum wage of 7. What is resulting employment level? 3. How would each of the following affect the equilibrium employment and real wage? a. A large number of immigrants enter the country b. A new law mandates the shutdown of some unsafe forms of capitals c. Energy supplies become depleted d. The federal government offers parents a subsidy in order to encourage them to stay at home with their children...
View Full Document

This note was uploaded on 10/12/2009 for the course ECON 291 taught by Professor J liu during the Spring '07 term at Simon Fraser.

Ask a homework question - tutors are online