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Frankie and Johnny can both earn a wage rate of $10 per hour and, coincidentally, both have $100 per week in non-labor income. Assume that both have T = 100 hours per week to allocate to leisure and work. Frankie chooses to work 40 hours per week. Johnny, on the other hand, chooses not to work at all! Use indifference curve analysis to account for why two individuals confronting the same wage rate and with the same amount of non-labor income make such different labor supply choices.

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Related questions

In 1981 Andrew Carnegie asserted that "parents who leave their children enormous wealth generally deaden their children's talents and energies and tempt them to lead less productive lives."

A.) Evaluate this statement using the labor-leisure model and explain the effects of such inheritances on hours of work and leisure.

B.) Some parents may link the inheritances to the actual amount earned by their children in the labor market. That is, the children can claim the inheritance only if their labor earnings exceed $50,000 per year. However, if their labor compensation is more than $150,000 per year the inheritance will be given to charity. Draw the budget constraint under the earnings-conditioned inheritance (scenario II).

C.) Now assume that the parents are interested in the amount of time their children spend in the labor market. Under this scenario, the children will receive double the market wage rate if they work at least 25 hours per week, three times the market wage if they work between 30 hours and up to 45 hours per week, and only the market wage for any additional hour worked. Draw the budget constraint under the hours-of-work condictioned inheritance (scenario III).

D.) Compare the welfare of the children when there is no inheritance whatsoever (scenario I) and under the two alternative scenarios (scenario II, scenario III). Are the children better off? Are any worse off? Explain.

[Note: For all the previous parts (a)-(d) assume that there is both a labor and a non-labor income component.]

In 2010, many unskilled workers in the United States earned the Federal minimum wage of $7.25 per hour. By contrast, average earnings in 2010 were about $20.00 per hour, and certain highly skilled professionals, such as doctors and lawyers, earned $150.00 or more per hour.

a. If we assume that wage differences are caused solely by differences in productivity, how many times more productive was the average worker than a worker being paid the Federal minimum wage?

Instructions: Round your answer to two decimal places.

times more productive than a minimum wage worker

How many times more productive was a $150-per-hour lawyer compared to a worker earning minimum wage?

Instructions: Round your answer to two decimal places.

 times more productive than a minimum wage worker

b. Assume that there are 20 minimum-wage workers in the economy for each $150-per-hour lawyer. Also assume that both lawyers and minimum-wage workers work the same number of hours per week. If everyone works 40 hours per week, how much does a $150-per-hour lawyer earn a week?

$ per week

How much does a minimum-wage worker earn a week?

$ per week

c. Suppose that the government pairs each $150-per-hour lawyer with 20 nearby minimum-wage workers. If the government taxes 25 percent of each lawyer%u2019s income each week and distributes it equally among the 20 minimum wage workers with whom each lawyer is paired, how much will each of those minimum-wage workers receive each week?

$ each week

If we divide by the number of hours worked each week, how much does each minimum-wage worker%u2019s weekly transfer amount to on an hourly basis?

Instructions: Round your answer to two decimal places.

$ per hour

d. What if instead the government taxed each lawyer 100 percent before dividing the money equally among the 20 minimum-wage workers with whom each lawyer is paired.

How much per week will each minimum-wage worker receive?

$ per week

How much is that on an hourly basis?

$ per hour

Question 3 Jennifer is a single mother oered a job at $15/hour. She has $100 of non-labor income per week (obtained via child support).

a. Jennifer's mother watches the baby for free while she works. What is Jennifer's total weekly income if she works 20 hours/week?

b. As Jennifer's baby gets older (and more mobile), the baby is too much for Jennifer's mother to take care of during the day. As a result, Jennifer must now use market childcare, costing $25/week in xed costs (transportation costs) and $10/hour in variable costs. How many hours must Jennifer now work to obtain the same total weekly income as before when she had access to free childcare?

c. If the childcare center does not allow one to pay by the hour, but instead requires one to pay for full-time care (40 hours/week) in order to have access to any care, what will Jennifer's income be (assuming the same xed and per hour cost of care as in (b) if she (i) decides not to work at all and (ii) increases her labor supply to 40 hours/week?

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