1. As a hypothetical case, suppose the typical individual has a utility function expressed as U = (C – 50)*(L – 10), where C is consumption and L is leisure time. The current wage, w,is $5 and she has a weekly return on assets of V = $100. She only has 60 hours per week to divide between work hours, h, and Leisure.

A number of countries and communities are considering implementing a “Guaranteed Basic Income” as policy. A “Guaranteed Basic Income” is a government payment of a fixed a amount of money for each person. Suppose the country of interest sets the weekly payment at $100.

a.            Using the Neo-classical labor supply with reference to specific numerical values discuss the consequences of the above “Guaranteed Basic Income”.

b.            Using the basic Supply and Demand for labor approach discuss the consequences of the “Guaranteed Basic Income” policy on the overall labor market.

c.             Using a feedback approach, from the Neo-classical labor supply to market equilibrium and back to labor supply, discuss the net results of the Guaranteed Basic Income policy given.

2.            By intent, education increases the productivity of labor. Suppose a country institutes effective public education so that the literacy and numerous rates within the country increase dramatically.

a.            Thinking only in terms of a single firm’s situation, discuss the consequences for the firm’s hiring decisions.

b.            In the general labor market, discuss the consequences of effective consequences and how they feedback into firm decisions.