Problem Set 1 - Problems on Labor Supply September 22, 2010...

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Unformatted text preview: Problems on Labor Supply September 22, 2010 1. Consider two individuals A and B . A is a workaholic (i.e. likes working a lot) and B likes leisure a lot. Draw indifference curves for A and B . 2. (a) Suppose that the market wage rate is $10 per hour. The total time available in a week is 168 hours. Write the equation of the budget constraint. (b) Now suppose that in addition to the information given in part (a), the worker gets an inheritance (which is a form of non labor income) of $500. Write the equation of the budget constraint with the inheritance. (c) Now suppose that in addition to the information given in part (b), there is a tax on labor income and the tax rate is 30%. Write the equation of the budget constraint with inheritance and the tax rate. 3. The utility function of a worker is represented by U ( C,L ) = CL . This implies that the marginal utility of leisure MU L is C and the marginal utility of consumption MU C is L ....
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Problem Set 1 - Problems on Labor Supply September 22, 2010...

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