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econ440 problem set 1

# econ440 problem set 1 - University of Illinois at...

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University of Illinois at Urbana-Champaign Professor Kristine Brown, ECON 440, Fall 2010 1 Problem Set #1 Due in class Tuesday, September 7 1. Indicate whether each statement is true or false, and support your answer with a 1-3 sentence explanation. If part of a statement is false, then the whole statement is false. a. Consider an individual who will live for two periods and in the first period has a wage of \$10/ hr and in the second period has a wage of \$20/hr. True or False : She will work more hours in the second period than in the first. False, An increase in wage leads to an outward rotation of the budget line. The effect on hours of work is ambiguous. It will depend on the relative strengths of income and substitution effects. So she may work more, may work less. b. True or False: The unemployment rate will not change if a worker, after being laid off, decides to retire early. True. The unemployment rate (u) equals those who are looking for a job divides by the labour force. This work, since he is not looking for job any more, he does not count in labour force. So the unemployment rate will not be changed. 2. Sogol can choose to work between 0 and 168 hours per week. The market wage she will receive is \$20 per hour of work. Her weekly utility over consumption and leisure is given as

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econ440 problem set 1 - University of Illinois at...

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