Impact of Uniform Fees on Labor Supply Elasticity & Wage Contracts, Assignments of Geology

Download Impact of Uniform Fees on Labor Supply Elasticity & Wage Contracts and more Assignments Geology in PDF only on Docsity! Economics 150A - Labor Economics Assignment #1 Answers Question 1 Sue is currently working 40 hours per week at a wage rate of $15 per hour. Sue also has $40 of non-wage income per week. He employer decides to institute a uniform cleaning fee of $100 per week. Does this affect her hours of work choice? If so, does she work more or less? Answer Since there is only an income effect, she will work more hours if she continues to work or she will drop out of the labor market. Given the small size of the fixed cost, it is most likely that she will stay in the market and work more hours. Possibility 1. Works More Income (Y) leisure Possibility 2. Leaves the Labor Market Income (Y) leisure Question 2 2 Nora is presently facing a wage of $10 per hour and is choosing to work 40 hours per week. Given the described preferences, which of the following two wage contracts will cause Nora to work the most hours? (a) A straight over-time contract that pays $10 per hour for every hour up to 40 hours and $12 for every hour thereafter. (b) A contract that pays $9 per hour for each hour up to hour 30 and then $13 for every hour thereafter. Answer Let’s assume that the maximum hours available for work and leisure are 80 (T=80) - you can pick at different T if you’d like, nothing will be different. Under the going wage of $10 per hour she could earn $800 if she worked all 80 hours and took no leisure. But we’re told that she chooses to work 40 hours. Under contract A she can earn $880 if she works 80 hours. Under contract B she can earn $920 if she works 80 hours. Given the structure of contract A and B, we know that both pass through the 40 hours for $400, so we know that contract B is the best contract. Question 3 l=leisure Y 800 L=40 T=80 880 920 50 40