lecture9_Oct3_slides (1)

lecture9_Oct3_slides (1) - October 3, 2011 Government...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: October 3, 2011 Government Assistance Designing welfare Policies Care primarily about three elements Provide adequate Income Minimize Employment Disincentives Minimize Public Costs Neoclassical Model of Labor Supply Indifference Curve Preferences for income (Y) and leisure (L) utility increases with both Individual is indifferent between all points on the same indifference curve Slope: reflects a worker s willingness to give up income for additional leisure Indifference curves Income (Y) Leisure (L) U1 Y L Indifference curve represents the combination of leisure (L) and income (Y) where the individual is equally as well-off $40 $80 $120 $160 16 12 8 4 Equally happy with $100 of income and 8 hours of leisure and $40 of income and 12 hours of leisure Indifference curves Income (Y) Leisure (L) Moving to a higher indifference curve (farther up and right) means better off [Note that more of both goods means definitely better off] $40 $80 $120 $160 16 12 8 4 U1 U2 A B Indifference curves Income (Y) Leisure (L) U1(Red) L Which individual is more of a workaholic, Red or Blue? BLUE requires less money to compensate for lost leisure $40 $80 $120 $160 16 12 8 4 U1(Blue) $35 $62 Neoclassical Model of Labor Supply Indifference Curve Preferences for income (Y) and leisure (L), utility increases with both Slope: reflects a worker s willingness to give up Y for additional L Budget constraint Time: T = L + H (H = hours of work) Assume T=16 (24 hr. day, 8 hrs. of sleep) Money: Y = wH + N, (w = wage, N = nonlabor income) Slope: Wage Rate Budget Constraint : Basic Income (Y) Leisure (L) Simplest case is a budget constraint with no transfers or non-wage income Can have only leisure and no income, work 16 hour days and have $(16*w) income, or any point in between $40 $80 $120 $160 16 12 8 4 Slope is the wage rate ($7.50/hr in this example) Budget Constraint: Fixed Transfer Income (Y)...
View Full Document

Page1 / 27

lecture9_Oct3_slides (1) - October 3, 2011 Government...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online