SIMON FRASER ECON291 tut1

SIMON FRASER ECON291 tut1 - individuals. a. Use the...

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Economics 291: Canadian Macroeconomic Policy Tutorial #1 (week of September 14) 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. Some economics textbooks have the following backward bending labor supply curve. Using the concepts of substitution and income effects to explain why the labor supply curve is upward sloping as w < w 1 , while the labor supply curve is downward sloping as w > w 1 . Labour supply Real wage w 1 3. 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
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Unformatted text preview: individuals. a. Use the concepts of income and substitution effects to explain why an increase 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? 4. 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...
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This note was uploaded on 04/15/2010 for the course ECON 291 taught by Professor J liu during the Summer '07 term at Simon Fraser.

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SIMON FRASER ECON291 tut1 - individuals. a. Use the...

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