Labour Market Economics
9th Canadian Edition
by Dwayne Benjamin
Complete Chapter Solutions Manual
are included (Ch 1 to 17)
* There is no Solution for Ch. 1
** Immediate Download
** Swift Response
** All Chapters included
** End of Chapter Answers
, CHAPTER 2
Labour Supply: Individual Attachment to the Labour Market
Answers to End-of-Chapter Questions
1. (LO2, 4) If leisure were an inferior good, which is pretty inconceivable, then there would
not be a backward sloping portion to the labour supply curve, even for high wages. Note
that according to this question, leisure is still a good; it is not a bad. Whether leisure is a
normal or an inferior good is reflected in the form of the indifference map. As the wage
rate is increased progressively, the budget line rotates clockwise. In this particular case,
the points of tangency move successively to the left, approaching the vertical axis.
Referring to figure 2.11b, imagine the tangency with indifference curve U3 lying to the
left of the tangency with indifference curve U2. The tangency with indifference curve U4
, which does not appear in the diagram, would lie to the left of the tangency with
indifference curve U3. This implies that the labour supply curve will always slope
upwards, as higher wage levels always generate lower levels of leisure.
(See diagram 2.11 of the text).
2. (LO1) The labour force is calculated as the sum of the employed and the unemployed,
which in this case is 22,000,000 + 1,000,000 = 23,000,000. The labour force
participation rate is calculated as the ratio of the labour force to the working age
population: 23,000,,000,000 = 77 %. The unemployment rate is calculated as the
ratio of the number of unemployed workers to the size of the labour force: 1,000,000 /
23,000,000 = 4.3 %.
3. (LO2, 3) Forget about the indifference curves for this question.
a. Assuming that you have discretion over how to spend 16 hours out of each day, your
time endowment is 16*7 = 112 hours per week. That would be the answer to the first
question. Your pre-determined, non-labour income gives the position of the lower
right-hand corner of your budget constraint. That indicates how much consumption
you can support without working. 122 hours multiplied by your wage plus the non-
labour income gives the Y-intercept of your budget constraint. That is the maximum
level of income that you can receive. The slope of your budget constraint is the
negative of your hourly wage.
b. Assuming that you have discretion over how to spend 52 weeks per year, that is your
time endowment. That would be the answer to the first question. From that
information you have to decide how many weeks of vacation you are going to take.
Your pre-determined, non-labour income gives the position of the lower right-hand
corner of your budget constraint. That indicates how much consumption you can
support without working. 52 weeks multiplied by your weekly earnings plus the non-
, labour income gives the Y-intercept of your budget constraint. That is the maximum
level of income that you can receive. The slope of your budget constraint is the
negative of your weekly earnings.
4. (LO2)
a. The poor who are at minimum subsistence and who aspire to middle class
consumption patterns: This group values income highly relative to leisure, so the
indifference curve is relatively flat. As the wage increases, the income constraint
line rotates clockwise, and we would expect a relatively large increase in hours
worked. This response is dominated by a substitution effect, but there may be a
small income effect working in the direction of increased leisure.
b. The wealthy who have acquired an abundance of material goods and who now aspire
to be members of the idle rich: This group values leisure highly relative to income
earned from wages, so the indifference curve is relatively flat. They would
presumably have high non-labour income, which would shift the income constraint
line upward in parallel fashion from the bottom right-hand corner. As the wage
increases, the income constraint line rotates clockwise, and we would expect a
decrease in hours worked. In this income range -- high up and to the left in the
leisure-income diagram -- very strong income effects work to outweigh the
substitution effect. Recall that for this labour supply model, the two effects always
work in opposite directions. This group is on the backward bending part of their
labour supply curve.
c. Workers who have a strong attachment to the labour force and who are reluctant to
change their hours of work: This situation can be depicted by the intersection
between the upper left-hand corner of the income constraint and the highest
indifference curve along the vertical axis (provided that the total time endowment
available for working is feasible). The indifference curve is flatter than the income
constraint line, so the marginal rate of substitution exceeds the wage. For a certain
range, an increase in the wage will not cause a change in hours worked, and we could
say that the wage elasticity of supply is perfectly inelastic.
d. Workers who have a weak attachment to the labour force and have viable alternatives
to labour market work: This case is very similar to case b. If the wage falls, they
might drop out of the labour force.
e. Workaholics are defined as those who have very strong preferences for labour market
work: They have very flat indifference curves. One can expect a tangency near the
vertical axis.
5. (LO4) The basic idea behind this question is that given smoothly sloped indifference
curves which are tangent to the wage constraint line at an interior solution (neither all
hours devoted to work nor all hours devoted to leisure), changes in the wage rate should
9th Canadian Edition
by Dwayne Benjamin
Complete Chapter Solutions Manual
are included (Ch 1 to 17)
* There is no Solution for Ch. 1
** Immediate Download
** Swift Response
** All Chapters included
** End of Chapter Answers
, CHAPTER 2
Labour Supply: Individual Attachment to the Labour Market
Answers to End-of-Chapter Questions
1. (LO2, 4) If leisure were an inferior good, which is pretty inconceivable, then there would
not be a backward sloping portion to the labour supply curve, even for high wages. Note
that according to this question, leisure is still a good; it is not a bad. Whether leisure is a
normal or an inferior good is reflected in the form of the indifference map. As the wage
rate is increased progressively, the budget line rotates clockwise. In this particular case,
the points of tangency move successively to the left, approaching the vertical axis.
Referring to figure 2.11b, imagine the tangency with indifference curve U3 lying to the
left of the tangency with indifference curve U2. The tangency with indifference curve U4
, which does not appear in the diagram, would lie to the left of the tangency with
indifference curve U3. This implies that the labour supply curve will always slope
upwards, as higher wage levels always generate lower levels of leisure.
(See diagram 2.11 of the text).
2. (LO1) The labour force is calculated as the sum of the employed and the unemployed,
which in this case is 22,000,000 + 1,000,000 = 23,000,000. The labour force
participation rate is calculated as the ratio of the labour force to the working age
population: 23,000,,000,000 = 77 %. The unemployment rate is calculated as the
ratio of the number of unemployed workers to the size of the labour force: 1,000,000 /
23,000,000 = 4.3 %.
3. (LO2, 3) Forget about the indifference curves for this question.
a. Assuming that you have discretion over how to spend 16 hours out of each day, your
time endowment is 16*7 = 112 hours per week. That would be the answer to the first
question. Your pre-determined, non-labour income gives the position of the lower
right-hand corner of your budget constraint. That indicates how much consumption
you can support without working. 122 hours multiplied by your wage plus the non-
labour income gives the Y-intercept of your budget constraint. That is the maximum
level of income that you can receive. The slope of your budget constraint is the
negative of your hourly wage.
b. Assuming that you have discretion over how to spend 52 weeks per year, that is your
time endowment. That would be the answer to the first question. From that
information you have to decide how many weeks of vacation you are going to take.
Your pre-determined, non-labour income gives the position of the lower right-hand
corner of your budget constraint. That indicates how much consumption you can
support without working. 52 weeks multiplied by your weekly earnings plus the non-
, labour income gives the Y-intercept of your budget constraint. That is the maximum
level of income that you can receive. The slope of your budget constraint is the
negative of your weekly earnings.
4. (LO2)
a. The poor who are at minimum subsistence and who aspire to middle class
consumption patterns: This group values income highly relative to leisure, so the
indifference curve is relatively flat. As the wage increases, the income constraint
line rotates clockwise, and we would expect a relatively large increase in hours
worked. This response is dominated by a substitution effect, but there may be a
small income effect working in the direction of increased leisure.
b. The wealthy who have acquired an abundance of material goods and who now aspire
to be members of the idle rich: This group values leisure highly relative to income
earned from wages, so the indifference curve is relatively flat. They would
presumably have high non-labour income, which would shift the income constraint
line upward in parallel fashion from the bottom right-hand corner. As the wage
increases, the income constraint line rotates clockwise, and we would expect a
decrease in hours worked. In this income range -- high up and to the left in the
leisure-income diagram -- very strong income effects work to outweigh the
substitution effect. Recall that for this labour supply model, the two effects always
work in opposite directions. This group is on the backward bending part of their
labour supply curve.
c. Workers who have a strong attachment to the labour force and who are reluctant to
change their hours of work: This situation can be depicted by the intersection
between the upper left-hand corner of the income constraint and the highest
indifference curve along the vertical axis (provided that the total time endowment
available for working is feasible). The indifference curve is flatter than the income
constraint line, so the marginal rate of substitution exceeds the wage. For a certain
range, an increase in the wage will not cause a change in hours worked, and we could
say that the wage elasticity of supply is perfectly inelastic.
d. Workers who have a weak attachment to the labour force and have viable alternatives
to labour market work: This case is very similar to case b. If the wage falls, they
might drop out of the labour force.
e. Workaholics are defined as those who have very strong preferences for labour market
work: They have very flat indifference curves. One can expect a tangency near the
vertical axis.
5. (LO4) The basic idea behind this question is that given smoothly sloped indifference
curves which are tangent to the wage constraint line at an interior solution (neither all
hours devoted to work nor all hours devoted to leisure), changes in the wage rate should
