Suppose a firm offers two contracts that have the same present value of earnings: the first pays a constant wage over the working life, while the second pays a low initial wage that grows over the working life up to age 65.
How might the hours worked differ over the working life between workers under the first versus the second contract if leisure is a normal good?
Under what circumstances would a firm prefer one type of contract over the other and why.
The Age Discrimination in Employment Act repealed mandatory retirement for workers who are age 65. How might this Act affect a firm's ability to offer the two contracts? What types of firms are likely to be adversely affected?
What are the implications of the discouraged- and added-worker effect for the slope of the supply of labor to an economy?
A consistent empirical finding that is robust across countries and cultures is that the average number of children in a family declines with increases in per capita income. Traditional economic theory, thus, concludes that children are an inferior good as income and the quantity of children chosen are inversely related.
Use the fertility model developed by Gary Becker to explain how this observed relationship between the number of children and per capita income could occur even when children are a normal good.
How might your explanation in (A) change if you allow the quality and the quantity of children to affect family welfare?
Consider two anti-poverty proposals: the first increases the benefits paid by the earned income tax credit (EITC); the second increases the federal minimum wage.
Which proposal is likely to be more successful at alleviating poverty?
Which proposal is likely to be more costly for the government?
Describe how the costs of raising children have (and have not) increased over the last 100 years. Which cost has increased the most?
