Question

Sue is offered a job reshelving books in the University of Montana library from noon until 1 p.M. Each Friday. Her reservation wage for this task is $10 per hour. If the library director offers Sue $100 per hour, how much economic surplus will she enjoy as a result of accepting the job? Now suppose the library director announces that the earnings from the job will be divided equally among the 400 students who live in Sue's dormitory. Will Sue still accept? Explain how your answers to parts a and b illustrate one of the incentive problems inherent in income redistribution programs.

Answer 1

Answer:

Step-by-step explanation:

Sue's initial wage per hour = $10

Sue's wage per hour after the increase = $100

a. Economic surplus to be enjoyed = $100 - $10

                                                      = $90

Sue would enjoy an economic surplus of $90.

b. No, because in this case the wage per hour for each 400 student would be;

                                          =  $\frac{100}{400}$

                                          = $0.25

                                          = 25 cents

Redistribution of income is the act of equal sharing of wealth among a certain number of people.

The problem here is that Sue would feel cheated with the division of the earnings among 400 students, but very happy when her wages was increased.

Though the income incentive redistribution programs reduce poverty, but it may be unfair.