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Chapter 6

Chapter 6. Supply of Labor to the Economy: The Decision to Work. Table 6.1: Labor Force Participation Rates of Females in the United States over 16 Years of Age, by Martial Status, 1900-2005 (percentage).

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Chapter 6

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  1. Chapter 6 Supply of Labor to the Economy: The Decision to Work

  2. Table 6.1: Labor Force Participation Rates of Females in the United States over 16 Years of Age, by Martial Status, 1900-2005 (percentage)

  3. Table 6.2: Labor Force Participation Rates for Male in the United States, by Age, 1900-2005 (percentage)

  4. Table 6.3: Labor Force Participation Rates of Women and Older Men, Selected Countries, 1965-2004 (percentage)

  5. Important Definitions - The Decision to Work I • Work vs. Leisure • Pure Income and Substitution Effects • Income and Substitution Effects of A Wage Change • Backward Bending Labor Supply Curve

  6. Figure 6.1: An Individual Labor Supply Curve Can Bend Backward

  7. Important Definitions - Indifference Curves I Characteristics • Each combination along an IC represents the same level of utility • IC’s further from origin represent higher levels of utility • IC’s do not intersect • IC’s are negatively sloped • IC’s are convex (Marginal Rate of Substitution • Declines)

  8. Figure 6.2: Two Indifference Curves for the Same Person

  9. Figure 6.3: An Indifference Curve

  10. Figure 6.4: Indifference Curves for Two Different People

  11. Important Definitions - Consumer Equilibrium • Budget Constraint • Wage Rate and the Slope of the Budget Constraint • Tangency Condition for Consumer Equilibrium • Corner Solution • Pure Income Effect and Consumer Equilibrium

  12. Figure 6.5: Indifference Curve and Budget Constraint

  13. Figure 6.6: The Decision Not to Work is a “Corner Solution”

  14. Figure 6.7: Indifference Curves and Budget Constraint (with an increase in nonlabor income)

  15. Income and Substitution Effect of a Wage Change • Solution When Substitution Effect Dominates • Solution When Income Effect Dominates

  16. Figure 6.8: Wage Increase with Substitution Effect Dominating

  17. Figure 6.9: Wage Increase with Income Effect Dominating

  18. Figure 6.11: The Size of the Income Effect is Affected by the Initial Hours of Work

  19. Important Definitions - Policy Applications • Unemployment Compensation • Guaranteed Annual Income • Workfare

  20. Figure 6.13: Budget Constraint with a Spike

  21. Figure 6.14: Income and Substitution Effects for the Basic Welfare System

  22. Figure 6.15: The Basic Welfare System: A Person Not Choosing Welfare

  23. Figure 6.16: The Welfare System with a Work Requirement

  24. Example 6.6: Wartime Food Requisitions and Agricultural Work Incentives

  25. Figure 6.17: Earned Income Tax Credit (Unmarried, Two or More Children), 2006

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