Question

7.) Consider two workers with identical preferences, Phil and Bill. Both workers have the same life cycle wage path in that they face the same wage at every age, and they know what their future wages will be. Leisure and consumption are both normal goods. a) Compare the life cycle path of hours of work between the two workers if Bill receives a one- time, unexpected inheritance at the age of 35. b) Compare the life cycle path of hours of work between the two workers if Bill had always known he would receive and, in fact, does receive) a one-time inheritance at the age of 35.

Answer 1

Answer Assoming that phil and Bill have some cycle wage that both have the same curve that have a rising trend tell the f so when the wage be max. and would slightly life wage age. decline

Llore life cycle phill & Bil. bour work Piy Bu 3 Age for both hour when normal curve the wace where they will worce man rate as high and Either na ' n ene ne bure be stable or slightly deeline of Bill gets a Ore tire unexpected Pnheritance of at the age of as. he was coill bound to work lesser hours than phil as his income Level has gone up. The age of 35 will have same curve but. there after Bill have a lower corse than phil as he world for lesser hours than phil. Due to the income Effect where the han g worle decrease with an ancreate an non labor Earning

Coorb. phil phill & Bilr Billa 35 curve shows of the Inheritance income work curve of Bill hous than phil. receiving the onexpected Effect will affect life cycle and he tend to work in less its of Bill always knew that he get a inheritance at age of 35. he never worked as philo he would always known that he get a non abor income at age of 3r. Thus the income Effect would have worked upon and he would have not work n as as much as he worked. much when he was not supposed to get the income

ke can say that he would have worked. to few hours than phil Throughout his life cycle. The pattern and slope might have been Similar to that to phil but would be a lower. core than the curve of phili hown phil word Bill - 3. 35 -