Calculations for the combined time and budget constraint

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1) Draw a figure of the case where a payroll subsidy can be physically given to workers but only benefit employers. Use labels to make it self-explanatory.

2) If, in the labor supply equation, the coefficient on non-labor income is positive, how might that be interpreted? Briefly explain in words.

3) Briefly explain in words how the elasticity of substitution relates to the crosselasticity of factor demand.

4) In a table, list the changes in employment and wages from perfect competition to the presence of a monopolist and a non-discriminating monopsonist, separately.

5) A worker's utility function is given by U(C, L)= C . L^3 , where C is the total expenditure on consumption, L is the amount of leisure hours per week (out of 168 hours available), the wage rate is $15 per hour, and non-labor income is zero. Show your calculations for:

a) The combined time and budget constraint.

b) The marginal rate of substitution.

c) The optimal amounts of leisure and consumption

6) Explain in words how the re-optimization resulting from an decrease in the wage rate theoretically differs for the firm on the labor demand side of the market as compared with the re-optimization for the worker on the labor supply side. More points will be allocated to the answers that describe their greatest differences.

Reference no: EM131230673

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