homework_1_labor_supply

# homework_1_labor_supply - ,Davis Economics 151a...

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University of California, Davis Dr. Janine L.F. Wilson Department of Economics Summer Session II 2009 Economics 151a Homework 1 Labor Supply 1. Recently, various industries in the U.S. have experienced falling wages (some government workers have chosen wage reductions in lieu of staff reductions, financial firms accepting TARP money have been forced to limit bonus and other compensation to their executives). a. Assume prices of goods and services have stayed the same. What effect would this wage decrease have on how many hours the worker would choose to work and the probability of him/her entering or leaving the workforce? b. Assume prices of goods and services have fallen as well. What effect would this wage decrease have on how many hours the worker would choose to work and the probability of him/her entering or leaving the workforce? 2. Bill works for Intel in the maintenance department. If he works up to 40 hours per week, he earns \$20 per hour for every hour that he works. For every hour in excess of 40, Bill earns \$40 per hour. Bill faces a 20% tax rate and pays \$4 per hour in child care expenses for each hour that he works. He receives \$200 in investment income each week. There are 168 hours in the week that he can choose to work. Graph Bill’s budget constraint labeling all kinks, axes and intersections clearly. 3. The following question will compare the labor leisure choice of two men, Caleb and Dominic. Both men have 168 hours that they could use in the week for work. Caleb loves impressing his friends with all of the latest and greatest material goods. The

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## This note was uploaded on 11/02/2009 for the course ECON 151A taught by Professor Miller during the Summer '06 term at UC Davis.

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homework_1_labor_supply - ,Davis Economics 151a...

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