ptsq6-labor-leisure

ptsq6-labor-leisure - Price Theory Study Questions #6...

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Price Theory Study Questions #6 LABOR/ LEISURE CHOICES 1. Suppose the government introduces the following program: Each worker is guaranteed a minimum income of $6/day. If the worker works at all , the benefit is reduced by $1 for every $1 earned by the worker. It is assumed that the time endowment is 24 hours, that the wage rate is $1/hour, and that other than the government benefit workers have zero non-labor income. Both leisure (L) and money income (I) are normal goods. a. Assume that prior to the introduction of this program, the worker’s desired number of work hours was 8. Using the labor-leisure model, analyze the impact of this policy leisure and work hours. b. Assume that prior to the introduction of this program, the worker’s desired number of work hours was something less than 8 hours. Using the labor-leisure model, analyze the impact of this policy leisure and work hours. c. Suppose the government now replaces this program with a program that allows the worker to earn up to $5 labor income without a reduction in the $6 benefit from the government. A further stipulation of this policy is that the government would start reducing payments dollar-for-dollar once the worker earns above $5 labor income. Assume that prior to the introduction of this program, the worker’s desired number of work hours was four. Analyze the impact of this policy on leisure and work hours and compare it with the outcome you would get under the original policy.
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ptsq6-labor-leisure - Price Theory Study Questions #6...

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