a) Assuming 0 nonwage income and a 160 hour week, at about what hourly wage rate will Reginald be in equilibrium on indifference Curve A?

b) Assuming 0 nonwage income and a 160 hour week, at about what hourly wage rate will Reginald be in equilibrium on indifference Curve B?

c) Does Reginald’s labor supply curve slope forwards or back in this range? Why?

d) Suppose Reginald gets the wage in (b). About how much nonwage income must Reginald get to be indifferent between that wage and the wage in (a)?

e) In approximate terms, what is the income effect and substitution effect (in hours) when increasing wages from that in (b) to that in (a)?

0 40 80 120 160

B. What would be the predicted effect of the new tax system on the labor supply of a lawyer who works more than 2000 hours per year? If applicable, be sure to talk about income and substitution effects. (You do not have to diagram these effects.)

In your analysis, assume
1. Lawyers in this land have choice over their hours.
2. “Leisure” is a normal good.
3. Indifference curves are the usual shape.
4. Ceteris paribus, i.e., at the time the tax system is introduced nothing else (wage rates, nonwage income, tastes) change.

3. Jones is a little bit lucky and a little bit unlucky. She was lucky when she won a lawsuit, and was paid $400 per month by her former partner. She was unlucky when, on the same day, her employer decreased her hourly wage from $15 per hour to $10 per hour.

A. Draw a goods-leisure diagram of how these two events alter Jones’ budget constraint. (Assume Jones has no nonlabor income.) (This means you should draw her budget constraint before today and after today.)

B. If Jones was previously working 80 hours per month, what would be the predicted effect of the change in the budget constraint. Your answer should include (at least) a discussion of…