ECON 201 Lecture Notes - Lecture 6: Unearned Income, Production Function, Consumer Choice

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silverrhinoceros276

17 Apr 2016

School

Simon Fraser University

Department

Economics

Course

ECON 201

Professor

Gulriz Barkin

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Document Summary

Production functions in the short-run in the short run (sr), we assume that capital is a fixed input and labor is a variable input. K1/2 ) substituting inputs the slope of an isoquant shows marginal rate of technical substitution (mrts) is the slope of an isoquant at a single point. Chapter 6 5 diminishing mrts along a convex isoquant elasticity of substitution: elasticity of substitution measures the ease with which a firm can substitute capital for labor. Occurs because of difficulty organizing and coordinating activities as firm size increases. Varying returns to scale many production functions have irts for small amount of output, crts for moderate amounts of output and. Technological progress due to technological progress, production functions can change over-time that enables the firm to achieve more output from a given combination of inputs or equivalently the same amount of output from less inputs.

Related Questions

Sonia works 30 hours per week at a gift shop. her hourly wage is increased from $10 to $12 and she is offered the option of increasing her total work hours. Given that leisure is a normal good for Sonia, she will choose to increase the number of hours she works only if:

A. the income effect of the wage change outweighs the substitution effect of the wage change.
B. the substitution effect of the wage change outweighs the income effect of the wage change.
C. her labor supply curve is downward-sloping
D. she views $12 an hour as an efficient wage

viridianlouse647

Using the neoclassical model of labor-leisure choice to answer the following questions.

a. How does an increase in wage rate change the optimal consumption-leisure combination chosen by the worker? State income effect and the substitution effect.

b. Suppose the government grants $1000 to women who are completely out of the labor force. If this eligible woman gets a job in the labor market, the government takes away 50 cents from the cash grant for every dollar earned by the woman. The wage rate in the labor market is $10 per hour. How does this welfare program create work disincentives for women?

jadejellyfish119

Worker 1 with non-labour income Y facing a wage offer w and a utility function defined over consumption and leisure:

U(c,l) = lnC + 4lnl

1) Compare worker 1 with worker 2 whose utility function is described by U(c,l) = cl.

Which worker places a higher value on labour market work?

2) Suppose the worker participates in the labour market. Derive worker’s compensated labor supply function and the compensated labour supply elasticity with respect to wage as a function of utility level and wage.

3) Derive worker’s uncompensated labour supply function (for labour market participants and non-participants) and the uncompensated labour supply elasticity (for labor market participants) with respect to wage as a function of non-labour income and wage.

4) Derive worker’s income elasticity. Is leisure a normal or inferior good for this worker?

5) Provide the functional form of the income effect from a marginal decrease in income.

6) Provide the functional form of the substitution and total income effects of a marginal increase in wage.

7) Show that the Slutsky equation holds for this worker.

amethystrabbit860

ECON 201 Lecture Notes - Lecture 6: Unearned Income, Production Function, Consumer Choice

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