laborps1

# laborps1 - represented by the utility function U C L" =...

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Economics 421 Spring 2004 Lich-Tyler Problem Set 1 (Due 5/18) 1. Prof. Plum’s preferences for weekly consumption and leisure are represented by the utility function U ! C , L " = C + 100 L . Her budget constraint is C = Y + WH , and her time constraint is H + L = T . She has \$200 in unearned income and 100 total hours in the week. a. Using any technique you wish, solve for Prof. Plum’s optimal C * , L * , and H * in terms of W . b. Evaluate these when W =\$10 and when W =\$20. In each case, what is Prof. Plum’s full income? What is her earned income? c. How does her labor supply change as her wage increases? (Take a derivative to show this.) What does this say about income and substitution effects? 2. Col. Mustard’s preferences for weekly consumption and leisure are
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Unformatted text preview: represented by the utility function U ! C , L " = ln C + ln L . He is faced with the usual time and budget constraints, and he has \$300 in unearned income and 100 total hours in the week. a. Using any technique you wish, solve for Col. Mustard’s optimal H * in terms of W . b. Find his reservation wage. 3. Find a statistic in the popular media (examples: Newsweek , the internet, an advertisement) that suggests “research shows that X may lead to Y.” Give a plausible reason why the observed correlation may not have that causal interpretation. (If you are desperate or lazy: consider the Surgeon General’s warning on a pack of cigarettes.)...
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## This note was uploaded on 03/19/2010 for the course ECON 480 taught by Professor Kinlaw during the Spring '08 term at UNC.

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