A worker receives CAD 3,000 of lump-sum transfers from the government annually and has 4,160 available hours per year. She is currently working 2,200 hours per year at the wage rate of CAD 20.00 per...

A worker receives CAD 3,000 of lump-sum transfers from the government annually and has 4,160 available hours per year. She is currently working 2,200 hours per year at the wage rate of CAD 20.00 per hour. After being promoted, her wage rate increases to CAD 25.00 per hour, and she decides to work 2,700 hours. She is indifferent between her original work decision and working 2,850 hours at CAD 25.00 per hour.1. What is the compensated wage elasticity of labor supply implied by her response to the wage increase? Is the compensated labor supply elastic or inelastic?2. What is the uncompensated wage elasticity of labor supply implied by her response to the wage increase? Is the uncompensated labour supply elastic or inelastic?3. Why are these elasticities different?


Consider worker 1 with non-labour income Y facing a wage offer w and a utility function defined over consumption and leisure U(c,l) = lnC + 4lnl1) Compare worker 1 with worker 2 whose utility function is described by U(c,l) = cl. Which worker places a higher value on labour market work? 12) Suppose the worker participates in the labour market. Derive worker’s compensated labor supply function and the compensated labour supply elasticity with respect to wage as a function of utility level and wage.3) Derive worker’s uncompensated labour supply function (for labour market participants and non-participants) and the uncompensated labour supply elasticity (for labor market participants) with respect to wage as a function of non-labour income and wage.4) Derive worker’s income elasticity. Is leisure a normal or inferior good for this worker?5) Provide the functional form of the income effect from a marginal decrease in income.6) Provide the functional form of the substitution and total income effects of a marginal increase in wage.7) Show that the Slutsky equation holds for this worker.