Suppose a person's utility for leisure (L) and consumption (Y) can be expressed as U = Y + L0.5. Show what happens to the person's labor supply curve when the income tax is cut from 70 % to 30 %. Denote hours worked as H and wage per hour as w
What will be an ideal response?
Since Y = net income, U = w(1 - t)H + (24 - H)0.5. Maximizing utility with respect to hours worked, H, yields H = 24 - (2(1 - t)w)-2. Any decrease in t would increase the number of hours worked. Note: This person is a workaholic. Even at a net wage of $1, this person only relaxes for 3/4 of an hour!
You might also like to view...
Based on the graph above, if the economy is at point 2, then (assuming no price shocks and no changes in actual and potential output) the inflation rate next period will be ________ percent
A) 5 B) 3.5 C) 4.5 D) 4 E) none of the above
The Keynesian AS curve differs from the classical AS curve in that:
a. the classical AS curve assumes flexible nominal wages. b. the Keynesian AS curve is upward sloping. c. the Keynesian AS curve focuses on short-run behavior. d. b and c. e. all of the above.