324ans - ECONOMICS 324 D HAMERMESH ANSWER KEY FOR...

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ECONOMICS 324 D. HAMERMESH ANSWER KEY FOR PROBLEMS/QUESTIONS ON PARTICIPATION AND HOURS 1. How would you classify the labor-force status of the following, and why? a. My 86-year-old mother, who does 20 hours per week of unpaid volunteer work teaching other older people how to use the Web. Out of the labor force because she is not performing or seeking paid work. b. My eight-year-old grandson, who works 20 hours per week for pay on a paper route. The CPS doesn’t collect data for people under age 16, so he’d be out of the labor force. c. A guy whose union is out on strike. The CPS classifies striking workers as employed. d. A 61-year-old man who is in a nursing home. Out of the labor force assuming that he is not actively seeking work. e. A 16-year-old who is doing 20 hours per week of unpaid work in his father’s business. Employed because he is 16 or older and, although the work is unpaid, it is for a family business. 2. Let a worker’s daily utility function be U = U(L, Y) = LY, where L is leisure and Y is income. The worker earns a wage of w per hour, and there are 16 hours available in the day. Her income is Y = I + w[16-L], where I is unearned income, with both I and w taken as given by the worker. For now let I=1000 a. Draw the worker’s indifference map between leisure and income. L (hours per day) Y The slope of this worker’s indifference curves is – MU L /MU Y =-Y/L. 10 5 2 10 2 4
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