Question

3. What happens to the reservation wage if nonlabor income increases, and why? You should include graphs with your answer 4. What happens to hours of work when the wage rate falls? Decompose the change in hours of work into income and substitution effects. 5. Cindy gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 168 hours. Her utility function is UCL) = CXL. This functional form implies that the slope of any of Cindy's indifference curves is . Cindy receives $630 each week from her great grandmother regardless of how much Cindy works. What is Cindy's reservation wage? 6. Why does a worker allocate his or her time over the life cycle so as to work more hours in those periods when the wage is highest? Why does the worker not experience an income effect during those periods?

Answer 1

Noulabour income is the income from any source other than the supply of labour. Reservation wage is the lowest wape rate at which a hooker would be willing to accept a particular type When the nou labour income increases, labour Склад Reservation decreases. Dennand - wage increases. supply SN si Reservation ware. wage. I Di Quantity of labour! si= gnitial labour supply wis Initial SN = New Labour reservation Di = Intitial labour demand WN: Nuo resituat waye Here, in graph, we can see that , due to increase O. in nou labour income, the reservation wage would increase.