Consider a worker/consumer with non-labor income, V, of 2 dollars. Time endowment is T=24 and denotes labor supply by h. Suppose the hourly wage is 5, and the consumption good's price is 1. Suppose that the optimal labor supply (given the prices) is h*=8. Suppose that the worker is offered the following contract: For every one of the first 8 hours, the wage per hour is 5. If the worker chooses to work for more than 8 hours the wage rate is 10 for each extra hour (above 8). A new graph depicts the budget set. Can you determine how labor supply changes? (comparing it to the case in which the wage rate is fixed at 5 dollars per hour).

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