Labor Supply

(a) Assume that leisure and consumption are both normal goods Derive the labor supply curve for the case where the sn: substitution effect is larger than the income effect. What is the relationship between wages and hours worked in this case (ie. positive or negative)?
(b) Assume that leisure and consumption are both normal goods. Derive the labor supply curve for the case where the income effect is larger than the substitution effect What is the relationship between wages and hours worked in this case (ie. positive or negative)?
(c) Empirical estimates of the relationship between wages and hours worked suggest that for low wages the substitution effect dominates the income effect. Conversely, the income effect dominates at high wages Draw a graph of the relationship between wages and hours worked that is consistent with this result. Plot wage on the vertical axis and hours worked on the horizontal axis.
(d) Given this relationship what is the likely effect of increasing the minimum wage ou hours worked for someone who is currently earning the minimum wage?
(c) Even if individual workers have *backward bending* labor supply curves. why is the market labor supply curve strictly upward sloping?

Problem 6
Single input producer problem Suppose the firm has the following production function: y VL.
(a) What is the perfect competition assumption?
(b) Assuming perfect competition. write the short-ri producer's problem in mathematics.
(c) the marginal product of labor for this firm is: What is the marginal product of labor if and what does that number mean?
(d) what is an nonprofit line?
(e) what is the slope of the isoprofu line in output versus labor space? (x on the vertical axis)
(f) what must be true at the solution to the firm's problem (hint: 2 conditions)
(g) solve for the firm's labor de:and function (L as a function of p and w)
(h) solve for the firm output supply function (y as a function of p and w)
(i) if = 4 and u 1. what is the finn's demand for labor and output supply? {this will be number)
(j) if increases to 10 and u remains at I dollar, what happens to output supply and labor demand (solve for these}
(k) remains at and increases to dollars, what happens to output supply and labor demand (solve for these)
(I) graph both solutions in output versus labor space. Be sure to draw the production function isoprofit lines, and indicate the quantities for each solution.

Problem 7 competitive market equilibrium
(a) define competitive market equilibrium (CME) (be sure to refer to 3 components).
(b) what is the competitive market assumption? (ie. how does it enter the firm's and consumer's problem)
(c) why is the CME stable? (explain the forces that ensures that it is stable).
(d) draw a competitive market equilibrium OL a graph for a domestic labor market and product market.
(e) Illustrate (on a graph) how cach of these equilibria are likely to change if we suddenly allow a large number of foreign immigrants w enter the country.
(f) Are business owners likely to support relaxed immigration laws? why?
(g) Are domestic workers that have to compete with the immigrants likely to support relaxed innanuigration laws? why?
(h) Are consumers who have incomes that are not affected by the immigration reform likely to
support relaxed immigration laws? why?

Labor Supply (a) Assume that leisure and consumption are both no...