Ray works as a home health nurse and by choosing to take on more or fewer clients each week, he can work as many hours as he wants. Imagine Ray earns $12 an hour and has 60 hours a week to devote to either work or leisure. He currently works 35 hours a week. Draw Ray's budget constraint and indicate his equilibrium amount of consumption. Please include indifference curve/s and clearly label all relevant points on your axis.

 

b) Based upon a recent Supreme Court decision, most home health aides are not guaranteed overtime pay. But suppose that this policy/decision changed, and home health aides like Roy were guaranteed 1.5 times their base wage for all hours worked after 40 per week.  On the graph above draw Ray's new budget constraint and indicate his new consumption bundle.

 

c) Would it have been possible for the overtime law to have caused Roy to reduce his labor supply? Why or why not? Be sure to discuss what your assumptions are about income and substitution effects.

 

d) Suppose there was another home health care aid, Gina, who has preferences such that she was working 50 hours a week. Would it have been possible for the overtime law to have caused Gina to reduce her labor supply?  Why or why not? Be sure to discuss what your assumptions are about income and substitution effects.

Answer rating: 100% (QA)

a In the initial scenario Ray earns 12 per hour and has 60 hours a week to allocate between work and leisure He currently works 35 hours a week To draw Rays budget constraint we can put the number of ... View the full answer