1. What is the relationship between wage and budget line? 2. Suppose the governm

Question

1. What is the relationship between wage and budget line?

2. Suppose the government decides to offer more generous benefits to working mothers. During an interview a potential employer asks you to describe how you would determine as an economist whether such a policy would create work incentives or work disincentives. Alternatively, how would you determine if the mothers would be better off or worse off after the law?

3.Explain why the demand for labor is described as a derived demand.

4.How many hours will a person allocate to leisure activities if her indifference curves between consumption and goods are concave to the origin? Explain.

5.Derive the slope of an indifference curve in terms of marginal utilities.

6.Using demand and supply analysis show what will happen to the labor market equilibrium for firemen as building codes change to require expensive firewalls and sprinklers to be included in all new construction.

Explanation / Answer

1) The relationship between wage (income) and Budget line is that as the consumer income (wage) increase the more the consumer will be able to purchase. Therefore there will be a shift in the budget line. A parallel shift in the budget line occurs. But when wage decreases the purchase of goods decreases and the shift changes.

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