1. Income and Substitution Effects. Sabrina works for a workers cooperative that initially pays her a lump sum of $200 per week (as long as she works at least 15 hours per week) and a wage of $20 per hour of work. She initially works 40 hours per week. Suppose the cooperative changes its pay plan by increasing the lump-sum payment to $280 and decreasing the hourly wage to $18. a. If Sabrina continues to work 40 hours per week, how does the change in the pay plan affect her total income?
b. Use the concepts of the income and substitution effects to predict whether Sabrina will work more hours, fewer hours, or the same number of hours. (Hint: Is there an income effect to consider?)
2. City versus National Carpenter Supply. Draw two supply curves for carpenters: one for the market in the city of Portland and one for the market in the United States. In which market would you expect amore elastic supply of carpenters?
3. Tax Rate and Tax Revenue. Critically appraise the following statement: The law of supply says that an increase in price increases the quantity supplied. A decrease in the income tax rate will increase the worker s net wage, so each worker will work more hours. As a result, the revenue from the income tax will increase.
4. Personal Labor Supply. We discussed the responses of Lester, Sam, and Maureen to a wage increase. Which person s response is closest to your own? If your wage increased, would you work more hours, fewer hours, or about the same number of hours?
5. Cabbie Wages and Income. Suppose New York City increases the taxi fare by 20 percent.
a. For the typical cabbie, daily income will increase by __________ (more than/less than/exactly) 20 percent. Explain.
b. Suppose the initial fare per mile is $0.60 and the initial mile per day is 100. Compute the percentage change in daily income