Income Sday 312 96 13 14 15 16 24 Leisure hrsday a At nomina

Income (S/day) 312 96 13 14 15 16 24 Leisure (hrs/day) a. At nominal wage rate w $12/hr, what is the number of hours (per day) a worker would choose to work? b. At nominal wage rate w $14/hr, what is the number of hours (per day) a worker would choose to work? 4. The individual supply of labour is given by the following equation: 12 + 0.051 w where w is the wage rate (S/week) and L is the number of hours (per week) that a worker would choose to work. a. At w $14/hr, what is the worker\'s economic rent (S/week)?

Solution

Question 3:
There are total 24 hours in a day which the woker can divide between leisure and work. X-axis denotes leisure hours chosen by a worker. Since there are total 24 hours so the hours not spent in lesure are spent working. Thus working hours = 24 - leisure hours. Also, workers choose leisure and working hours as per the point at which slope of their indifference curve equals the slope of their budget line which is the point of tangency.

a. Corresponding to income $96, we observe that the leisure hours are 16 (as per tangency point). Thus, working hours = 24 - leisure hours = 24 - 16 = 8 hours. Worker earns $96 by working 8 hours so amount received per hour = total income divided by total working hours = 96/8 = $12 per hour. Thus, at a nominal wage of $12/hour, 8 hours per day a worker would choose to work.

b. When income is $336, we observe that leisure hours are zero so all the hours in a day are spent working. Thus, working hours = 24. So, hourly wage = total income divided by total working hours = 336/24 = $14 per hour. So, we have found that when the total income is $336, nominal wage is $14 per hour. On this line, we observe that according to point of tangency, worker chooses 14 hours of leisure per day. So, number of working hours in a day = 24 - number of leisure hours in a day = 24 - 14 = 10 hours per day. Thus, at a nominal wage of $14/hour, 10 hours per day a worker would choose to work.

Note: Please post one question at a time.