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Question: many college students work to pay for school expenses eg...

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Many college students work to pay for school expenses, e.g., tuition, texbooks, etc. Suppose it is well known that college students who work a part-time job obtain a lower GPA than those who don’t (because they have less time for studying). Considering GPA is one of the important criteria for future employment, doing part-time work can be interpreted as an increase in current income at the cost of reduced income in the future.

1. Using our standard leisure-consumption graph, show how college students’ labor supply decisions are affected by the harm they cause to their GPA. (Hint: Think of “study time” as leisure–the time you are not working. For every hour that a student is working and hence cannot study, they bear a cost in terms of reduced future income. This is like a tax on their current earnings of $z per hour).

2. What is the effect of having to pay a $z tax on current earnings on the labor force participation rate of college students?

3. The government is considering giving a lump-sum amount to every college student regardless of how much they work. What does this reveal about whether the government believes college students should be working more or less?

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