1 a labour force can be broken down as follows potential labour force participants 40 million employed 28 million not working, but actively seeking work 1 5 million full time students 3 million retired 4 9 million not working, discouraged because of lack of jobs 600,000 not working, household workers 2 million a) using the numbers above, calculate this economy's labour force participation rate b) using these numbers above, calculate this economy's unemployment rate 2 Consider two individuals, Carole and Mo, who each have a job opportunity that pays a wage of $20 per hour and allows them to choose the number of hours per week they'd like to work Carole has stronger preferences for leisure than Mo Ultimately, both Carole and Mo choose to work more than zero hours per week Draw (and upload) one graph that includes Carole and Mo's income leisure constraint Carole's utility maximizing indifference curve (U C ) and choice of leisure hours (L C ) Mo's utility maximizing indifference curve (U M ) and choice of leisure hours (L M ) Note There are multiple, though similar, ways to draw this graph Focus on ensuring that the constraint, indifference curves and hours worked align with the information provided above 3 Consider an individual who lives in an economy without a welfare program They initially work T L 0 hours per week, where (T L 0 ) 0 They earn an hourly wage (W) and no non labour income a) Draw a graph that reflects this individual's income leisure constraint, utility maximizing indifference curve (U 0 ), choice of leisure hours (L 0 ) and income (Y 0 ) b) Now, assume that a welfare program has been implemented in this economy The welfare benefit is smaller than the individual's initial income level (Y 0 ) and there is a 50 clawback on any labour income earned The individual now maximizes their utility by working and collecting a partial welfare benefit On the same graph as part a, draw this individual's new income leisure constraint, utility maximizing indifference curve (U 1 ), choice of leisure hours (L 1 ) and income (Y 1 ) 4 Consider an individual who initially works T L 0 hours per week, where (T L 0 ) 0 They earn an hourly wage (W) and no non labour income a) Draw a graph that reflects this individual's income leisure constraint, utility maximizing indifference curve (U 0 ) and choice of leisure hours (L 0 ) b) The government then implements a wage subsidy program in which worker wages are increased by 10 This wage subsidy program has no limits, so there is no phase in out This wage subsidy produces both an income effect and a substitution effect on the worker's choice of leisure hours Assume that the substitution effect is stronger than the income effect On the same graph as part a, draw this individual's new income leisure constraint, utility maximizing indifference curve (U S ) and choice of leisure hours (L S ) Note When incorporating the 10 wage subsidy into the graph in part b, I am not expecting perfect precision Just try your best to draw the new income leisure constraint as though a 10 wage subsidy has been added 5 Consider an individual who was employed prior to having a child Now, they face daycare costs (M) if they choose to go back to work Assume that they earn an hourly wage (W) and their non labour income (Y N ) is greater than their daycare costs (Y N M) Despite the daycare costs, this individual chooses to work T L 0 hours per week Draw a graph that reflects this individual's income leisure constraint (both with and without daycare costs), utility maximizing indifference curve (U 0 ) and choice of leisure hours (L 0 ) 6 Consider an individual who had been planning to retire in five years Unfortunately, they've just been laid off and the highest paying job they've been able to find pays a lower hourly wage than did their previous job a) Using the concepts of the income and or substitution effect, describe why we might expect this individual to retire earlier than they originally planned b) Using the concepts of the income and or substitution effect, describe why we might expect this individual to retire later than they originally planned

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1. a labour force can be broken down as follows: - potential labour force participants: 40 million - employed: 28 million - not working, but

1. a labour force can be broken down as follows:

- potential labour force participants: 40 million

- employed: 28 million

- not working, but actively seeking work: 1.5 million

-full-time students: 3 million

- retired: 4.9 million

- not working, discouraged because of lack of jobs: 600,000

-not working, household workers: 2 million

a) using the numbers above, calculate this economy's labour force participation rate

b) using these numbers above, calculate this economy's unemployment rate.

2. Consider two individuals, Carole and Mo, who each have a job opportunity that pays a wage of $20 per hour and allows them to choose the number of hours per week they'd like to work. Carole has stronger preferences for leisure than Mo. Ultimately, both Carole and Mo choose to work more than zero hours per week.

Draw (and upload) one graph that includes:

Carole and Mo's income-leisure constraint
Carole's utility-maximizing indifference curve (U_C) and choice of leisure hours (L_C)
Mo's utility-maximizing indifference curve (U_M) and choice of leisure hours (L_M)

[Note: There are multiple, though similar, ways to draw this graph. Focus on ensuring that the constraint, indifference curves and hours worked align with the information provided above.]

3. Consider an individual who lives in an economy without a welfare program. They initially work T-L₀ hours per week, where (T-L₀)>0. They earn an hourly wage (W) and no non-labour income.

a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing indifference curve (U₀), choice of leisure hours (L₀) and income (Y₀).

b) Now, assume that a welfare program has been implemented in this economy. The welfare benefit is smaller than the individual's initial income level (Y₀) and there is a 50% clawback on any labour income earned. The individual now maximizes their utility by working and collecting a partial welfare benefit.

On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing indifference curve (U₁), choice of leisure hours (L₁) and income (Y₁).

4. Consider an individual who initially works T-L₀ hours per week, where (T-L₀)>0. They earn an hourly wage (W) and no non-labour income.

a) Draw a graph that reflects this individual's income-leisure constraint, utility-maximizing indifference curve (U₀) and choice of leisure hours (L₀).

b) The government then implements a wage subsidy program in which worker wages are increased by 10%. This wage subsidy program has no limits, so there is no phase-in/out. This wage subsidy produces both an income effect and a substitution effect on the worker's choice of leisure hours. Assume that the substitution effect is stronger than the income effect.

On the same graph as part a, draw this individual's new income-leisure constraint, utility-maximizing indifference curve (U_S) and choice of leisure hours (L_S).

[Note: When incorporating the 10% wage subsidy into the graph in part b, I am not expecting perfect precision. Just try your best to draw the new income-leisure constraint as though a 10% wage subsidy has been added.]

5. Consider an individual who was employed prior to having a child. Now, they face daycare costs (M) if they choose to go back to work. Assume that they earn an hourly wage (W) and their non-labour income (Y_N) is greater than their daycare costs (Y_N > M). Despite the daycare costs, this individual chooses to work T-L₀ hours per week.

Draw a graph that reflects this individual's income-leisure constraint (both with and without daycare costs), utility-maximizing indifference curve (U₀) and choice of leisure hours (L₀).

6. Consider an individual who had been planning to retire in five years. Unfortunately, they've just been laid off and the highest-paying job they've been able to find pays a lower hourly wage than did their previous job.

a) Using the concepts of the income and/or substitution effect, describe why we might expect this individual to retire earlier than they originally planned.

b) Using the concepts of the income and/or substitution effect, describe why we might expect this individual to retire later than they originally planned.