Topic 2: Labor Supply

Question 1

Positive vs Normative Economics

Answer 1

Question 2

Properties of Indifference Curve in static model of labour supply

Answer 2

Question 3

Draw Indifferent Curve of Static model of labour supply

Answer 3

Question 4

Explain:

1) Marginal utility of leisure
2) Marginal utility of consumption
3) Marginal rate of substitution

Answer 4

Question 5

Different IC showing differences in preferences

Answer 5

Question 6

State the budget constraint in the static model of labour supply

Answer 6

Question 7

Draw Budget Constraint of static model of labour supply

Answer 7

Question 8

Optimal hours of work decision

Answer 8

Question 9

The interior solution

Answer 9

Question 10

Graphically show optimal consumption and leisure

Answer 10

Question 11

Explain the effect of a change in nonlabour income on hours of work

Answer 11

Question 12

Explain the effect of price change on demand

Answer 12

Question 13

Effect on wage change on the demand for leisure

Answer 13

Question 14

State leisure demand functions

Answer 14

Question 15

**State Slutsky Equation

Answer 15

Question 16

Derive Slutsky Equation

Answer 16

MT Lecture 2 p.18

Question 17

Include endownment effect in slutsky equation

Answer 17

Question 18

Effect of wage increase on compensated and uncompensated demand curves

Answer 18

Question 19

Reservation wage

Answer 19

Question 20

Backward Bending Labour Supply Curve

Answer 20

Question 21

Labour Force Measurement

1) Labour force
2) Labour force participation rate
3) Employment rate
4) Unemployment rate

Answer 21

Question 22

Labour supply over business cycle:

1) Added-worker effect
2) Discouraged worker effect

Answer 22

• The discouraged worker effect usually dominates the added-worker effect, especially during recession
• The labour force participation rate is pro-cyclical

Question 23

**Estimate the effect of income on earnings - Empirical studies

Answer 23

MT Lecture 2 p.44

Question 24

**Estimate the effect of income on earnings - Empirical studies findings

Answer 24

Question 25

Labour supply elasticity

Answer 25

Question 26

Labour supply of women

Answer 26

Question 27

**State different welfare programs and work incentives

Answer 27

Question 28

**Effect of work grant on work incentives

Answer 28

Question 29

Self-sufficiency project (SSP)

Answer 29

MT Lecture 2 p.56

Question 30

Explain Policy application: Earned-income tax credit (EITC)

Answer 30

Question 31

The EITC and the budget line

Answer 31

Question 32

Effect of EITC:

Show that the EITC may draw person into market work or may reduce working hours

Answer 32

Question 33

**Labour supply over life cycle

Answer 33

Question 34

Theoretical prediction on evolution of wages and hours over lifetime

Answer 34

Question 35

Hours of work over life cycle for two different workers with different wage paths

Answer 35

Question 36

Effect of retirement on labour supply

Answer 36

Question 37

Factors changing retirement patterns

Answer 37

Question 38

Economics of the family

Answer 38

Question 39

Frontier of opportunities of couple and single

Answer 39

Question 40

Effect of wage increase and productivity on couples labour supply

Answer 40

Question 41

How do children affect labour supply

Answer 41

Question 42

**Causal model showing the effect of children on labour supply

Answer 42

MT Lecture 2 p.94

Question 43

When is OLS Estimate Causal?

Answer 43

1) OLS Estimate is causal if treatment is randomly assigned
2) OLS is causal if treatment is random conditional on some controls, and we add these controls
3) Instrumental variables (IV or 2SLS)

Question 44

When is OLS estimate causal?

OLS estimate is causal if treatment is randomly assigned

Answer 44

Question 45

When is OLS estimate causal?

OLS is causal if treatment is random conditinoal on some controls, and we add these controls

Answer 45

Question 46

When is OLS estimate causal?

Supper we cannot randomise –> use Instrumental variables (IV or 2SLS)

Answer 46

Question 47

Instrumental variables assumptions with heterogeneous treatment effects

Answer 47

Question 48

Effect of Children on labour supply - IV (2SLS)

Answer 48

MT Lecture 2 p.109