Policy Evaluation: Wage Subsidy vs. Cash Transfer
A government aims to increase the labor supply (hours worked) of low-income individuals while also increasing their overall well-being. They are considering two policies for a representative individual whose preferences for consumption (c) and free time (t) can be described by the utility function U(c, t) = c * t. The individual has T total hours available, earns an hourly wage 'w', and has no unearned income initially. Based on your understanding of how an individual's optimal choices depend on their economic parameters, evaluate which policy is more likely to achieve the government's stated goal of increasing hours worked. Justify your reasoning.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.3 Doing the best you can: Scarcity, wellbeing, and working hours - The Economy 2.0 Microeconomics @ CORE Econ
Evaluation in Bloom's Taxonomy
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Analyzing Changes in Optimal Choice via Differentiation
An individual's preferences for consumption (c) and free time (t) are represented by the utility function U(c, t) = c * t. The individual has a total time endowment of T hours, earns a wage of 'w' per hour worked, and receives unearned income of 'I'. Which of the following expressions correctly represents the individual's optimal choices for consumption and free time as functions of their wage and unearned income?
Labor Supply Response to Unearned Income
Determinants of the Optimal Labor-Leisure Choice
Evaluating a Labor Supply Model
An individual's optimal choices for free time (t*) and consumption (c*) are described by the functions t*(w, I) = (wT + I) / (2w) and c*(w, I) = (wT + I) / 2, where 'w' is the wage rate, 'I' is unearned income, and 'T' is total time available. If this individual's unearned income 'I' increases, while their wage 'w' and total time 'T' remain unchanged, what is the predicted effect on their optimal choices?
Statement: For any individual who considers both consumption and free time to be normal goods, an increase in the wage rate will unambiguously lead them to choose less free time.
An individual has a total time endowment of T, earns a wage rate of 'w' per hour worked, and receives unearned income of 'I'. Their budget constraint is c = w(T-t) + I. Match each utility function representing their preferences for consumption (c) and free time (t) with the correct corresponding optimal choice function for free time, t*(w, I).
The Role of Preferences in Labor Supply Decisions
Policy Evaluation: Wage Subsidy vs. Cash Transfer
Analysis of a Tax and Transfer Policy
Evaluating a Labor Supply Model
Determinants of the Optimal Labor-Leisure Choice