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Unformatted text preview: 2, x 2 , is rival and exclusive while good 1, x 1 , is non-rival and non-exclusive, the government purchases a Pareto optimal level of x 1 , and x 1 is produced by a price-taker industry that exhibits constant returns to scale. a. Using x 2 as the numeraire good derive an expression for social income. b. Explain and defend your measure of social income. 6. Suppose an employer has been paying his workers $5 an hour for the first 40 hours per week and $7.50 per hour for voluntary overtime. Average overtime is 10 hours per week. The employer also has to pay $10 dollars a week social security contribution per employee ( irrespective of hours worked). The workers now suggest abolishing overtime rates and replacing them with a flat rate system paying $5.50 per hour for each hour from zero upwards. Will the employer agree? Explain everything....
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This note was uploaded on 01/09/2011 for the course ECON 7140 taught by Professor Kutler during the Spring '10 term at Utah Valley University.
- Spring '10