Econ10A_PSET4

# Econ10A_PSET4 - Econ 10A - Problem Set 4 Supply of Labor 1....

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Econ 10A - Problem Set 4 Supply of Labor 1. Let U(L e , I) = L e 2 I. What is the individual’s labor supply function (L a (w, I 0 ))? How many hours does the individual work if the wage (w) is 10\$/hr and non-wage income (I 0 ) is 320\$/wk? 2. Illustrate the income and substitution effects of a rise in a consumer’s wage, w, upon their labor supply (i.e., their hours worked). 3. Using one budget line and 1 indifference curve, illustrate a case in which an individual’s wage is such that the individual chooses not to work at all. 4. Your friends have a theory that people’s utility functions U(L e , I) for leisure and disposable income might take the linear form, U(L e , I)=L e + I. Show that they must be wrong. (Hint: Try drawing a picture and think about what this theory implies as wage rates get very high.) 5. Use budget lines and indifference curves to illustrate the case where a simultaneous doubling of the wage rate and a doubling of my non-wage income would have no effect on my labor supply. 6.

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## This note was uploaded on 03/03/2011 for the course ECON 10a taught by Professor Babcock during the Winter '11 term at UCSB.

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Econ10A_PSET4 - Econ 10A - Problem Set 4 Supply of Labor 1....

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