Labor Supply Response to Policy Change
To predict the impact of this policy, determine the mathematical expression that represents the rate of change of optimal free time with respect to a change in unearned income, holding the wage constant.
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An individual's optimal amount of daily free time, t*, is determined by their hourly wage rate (w) and their non-labor income (I). The relationship is given by the function: t*(w, I) = 12 + (0.5 * I) / w. Which of the following expressions correctly represents the rate at which the optimal amount of free time changes as the wage rate changes?
Calculating the Marginal Effect of Wage on Free Time
Labor Supply Response to Policy Change
An individual's optimal choice for daily free time (t*) is described by the function t*(w, I) = 18 - (2w / I), where 'w' is the hourly wage rate and 'I' is daily unearned income. Assume both w and I are positive values. A student claims that for any positive wage and unearned income, a small increase in the wage rate will always lead to a decrease in the optimal amount of free time. Is this claim true or false?
An individual's optimal daily free time (t*) is a function of their hourly wage (w) and daily unearned income (I). Match each optimal free time function with the correct mathematical expression that represents how t* changes as the wage rate (w) changes, holding unearned income constant.
An individual's optimal daily free time, t*, is determined by their hourly wage, w, and daily unearned income, I, according to the function: t*(w, I) = 20 - 0.5*w + I/w. The mathematical expression that represents the rate of change of optimal free time with respect to the wage rate is ____.
A microeconomist wants to determine how an individual's optimal choice of daily free time, represented by the function t*(w, I), responds to a small change in their hourly wage rate (w), assuming their unearned income (I) remains unchanged. Arrange the following steps into the correct logical sequence for conducting this analysis.
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An economist observes that for a particular group of individuals, the rate at which their optimal daily free time (
t*) changes in response to a change in their hourly wage (w) is consistently represented by the expression-100/w². Given thatt*is a function of both wage (w) and unearned income (I), which of the following functions fort*is consistent with this observation?Comparing Economic Models of Labor-Leisure Choice