Answered: 1600 BC 3 INCOME (Dollars) 960 BC2 480…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 18RQ: What is deflation?

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Question

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Alani has 80 hours per week that she can devote to time spent working or on leisure activities. Assume that Alani is paid by the hour, and that her job will always allow her to work as many hours as she chooses.

The following graph presents Alani's weekly leisure-income tradeoff. The three lines labeled BC1BC1, BC2BC2, and BC3BC3 show her time allocation budget at three different hourly wage levels. The given points A, B, and C represent her optimal time allocation choices along each of these constraints.

For each listed point, use the preceding graph to complete the following table by indicating the hourly wage as well as the number of hours per week Alani will spend on labor and leisure.

Point	Wage	Leisure
(Dollars per hour)	(Hours)	(Hours)
A
B
C

Based on the data you entered in the preceding table, use the orange curve (square symbols) to plot Alani's labor supply curve on the following graph, showing how much labor she supplies each week at each of the three wages.

Suppose that Alani's initial budget line was BC2BC2 and that it then changed to BC3BC3; therefore, Alani's optimal time allocation choice shifted from B to C. As a result of this change, Alani's opportunity cost of leisure ___ , and she chose to consume ____ leisure. Consequently, in this region, the ___ effect dominates the ___ effect. The corresponding portion of Alani's labor supply curve is ____ .