[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

constraint has a kink at 37 hours of work. Discuss the
consequences of the kink in the budget constraint.
3. Under current economic conditions, let’s say that an
unskilled worker will be able to get a job at a wage of $6
per hour. Now assume the government decides that all
people with a weekly income of less than $180 will be
given a check from the government to bring them up to
the $180 level. Draw one such worker’s original budget
constraint and the constraint with the welfare program.
Will this welfare program be likely to cause a recipient
who originally worked 30 hours to work less? How about
a recipient who worked less than 30 hours? more than
30 hours? Explain how the government might reduce
these negative effects by offering a wage subsidy that
would increase the hourly wage to $7 per hour for each
of the first 20 hours worked, and draw a revised budget
constraint to illustrate.
4. There is a negative relationship between a woman’s real
wage and her family size. Two possible explanations
have been put forth. One is that women with higher real
wages choose to have smaller families. Explain why this
might be so. The second explanation is that larger family
sizes might cause women to receive lower wages, perhaps
because they can accept only jobs that allow them
the flexibility to stay home when their children are sick.
What evidence might help you choose between these
two explanations?
5. John is a college student who has decided that at current
wage levels, it is not worthwhile getting a part-time
job. Now suppose the wage increases. Explain how the
substitution effect of the wage increase affects John’s
decision. Is there an income effect on John of the wage
increase?
6. Over the past twenty years, the income gap between
workers with college degrees and those without a college
education has grown. Draw two supply and demand
diagrams, one for workers with college degrees and one
for workers without degrees. Now suppose new information
technologies raise the marginal product of
highly educated workers but do not affect the marginal
product of less-educated workers. Use your supply and
demand diagrams to illustrate what happens to the
wage gap between the two types of workers.
7. Suppose an increase in educational opportunities
increases the supply of college-educated workers and
reduces the supply of workers without college educations.
Using supply and demand diagrams, illustrate
how this change would affect the gap between the
wages of workers with and those without college
educations.
REVIEW AND PRACTICE ∂ 187