Assignment # 1

Dr. Shamaila Nawaz

Labor Economics 1
BSEco2K12
Due Date: 24-10-14 (11.00am)

1. Cindy gains utility from consumption C and leisure L. The most leisure she can consume in any
given week is 168 hours. Her utility function is U(C,L) = C*L. this functional form implies that
Cindys marginal rate of substitution is C/L. Cindy receives $630 each week from her greatgrandmotherregardless of how much Cindy works. What is Cindys reservation wage?
2. Explain why a lump-sum government transfer can entice some workers to stop working (and
entices no one to start working) while the earned income tax credit can entice some people who
would not work to start working (and entices no one to stop working).