Question 1. Consider Tom's labor supply decision. Tom can earn $15 per hour, but he faces a 20% tax rate and pays $4 per hour in child care expenses for each hour he works.
a. What is Tom's 'real' hourly wage rate?
b. How much will it be if he had 128 hours of leisure (= worked 40 hours)d. Tom chooses to work 40 hours a week. On the above graph, draw Tom's indifference curves between leisure and money so that this is his optimal labor supply choice.
Question 2. Brad and Angelina are married with kids. Suppose Brad's at-home productivity as a parent is $25 and Angelina's is $40.
a. Who has an absolute advantage in the home? How do you know?
b. If Brad works in the labor market, he can earn a wage of $500 per hour, while Angelina can earn $600 per hour. Considering comparative advantage, which of the two should specialize in the labor market? Explain.