Labor Econ

Congress frequently considers proposals to reduce the rate at which capital gains are taxed (i.e. lowering the costs of capital). Proponents believe that the reduced capital gains tax rate would encourage businesses to expand and hire more workers. Opponents argue that such a tax cut would primarily benefits stockholders. Although it is an important aspect of the debate, for the purposes of this question, you may ignore the effects that the proposed tax cut would have on the federal governments budget deficit. a) Do proponents of the capital gains tax cut believe that labor and capital are gross complements or gross substitutes? What do opponents believe about the magnitudes of the subst... click for more

Labor Econ

Imagine a Congressman is proposing to improve the welfare of every citizen in the U.S. by paying a base income of $1,200 a month to everyone regardless of income,a ssets, age, etc. The argument of the congressman is that by doing so people could work in jobs "they really like" instead of working just to earn an income. What do you think of such a proposal? Specifically, evaluate this proposal in light of the income-leisure model and make comments about what that model predicts about labor supply if such proposals would become law. Support your answer with a graph.

Maximize profits

1. Standard Enterprises produces an output that it sells in a highly competitive market at a price of $100 per unit. Its inputs include 2 machines (which cost the firm $50 each) and workers can be hired on as-needed basis in a labor market at a cost of $2,800 per worker. Based on the following production data, how many workers should the firm employ to maximize its profits? (See attached file for full problem description)

Indifference curves for consumption and leisure

Imagine an individual with indifference curves for consumption and leisure that are concave to the origin, rather than convex to the origin. a) In words, what would this mean about the individual's "value" of leisure as he reduced his hours worked? b) Would such a person spend all of his available time working, some of it, or none of it? Show on a graph.

No income maintenance program

Consider a country with no income maintenance program that enacts an Earned Income Tax Credit similar to the US. a) Among all working people, will this program lead to a reduction in hours worked? prove your answer either graphically or mathematically. state all assumptions. b) What are the expected effects on labor force participation according to your model? c) What does empirical evidence on the U.S. experience with the Earned Income Tax Credit predict will be the effect of the new policy?