Consider the following labor-leisure choice model. Utility function over consumption (C) and leisure (L) U(C.L) = C1/3L1/3 Total hours: H = 40 Labor hours: NS = H - L Non-labor income: π = 30 Lumpsum tax: T = 10 Hourly wage: w = 4 Suppose the hourly wage changes to w = 3. What is the substitution effect of this change on labor supply?
Consider the following labor-leisure choice model. Utility function over consumption (C) and leisure (L) U(C.L) = C1/3L1/3 Total hours: H = 40 Labor hours: NS = H - L Non-labor income: π = 30 Lumpsum tax: T = 10 Hourly wage: w = 4 Suppose the hourly wage changes to w = 3. What is the substitution effect of this change on labor supply?
Economics Today and Tomorrow, Student Edition
1st Edition
ISBN:9780078747663
Author:McGraw-Hill
Publisher:McGraw-Hill
Chapter7: Demand And Supply
Section7.1: Demand
Problem 4R
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![Consider the following labor-leisure choice model.
Utility function over consumption (C) and leisure (L)
U(C.L) = (1/3L1/3
Total hours: H = 40
Labor hours: NS = H - L
Non-labor income: π = 30
Lumpsum tax: T = 10
Hourly wage: w = 4
Suppose the hourly wage changes to w = 3. What is the substitution effect of this change on labor supply?
A. +2.65
B. -2.65
C. +3.48
D.-3.48
E. None of the above](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe333b570-3dc5-4bee-bced-cf379c81a351%2Fbfcc0d0b-a535-4414-8540-d98daecd20b3%2Fwh3n048_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider the following labor-leisure choice model.
Utility function over consumption (C) and leisure (L)
U(C.L) = (1/3L1/3
Total hours: H = 40
Labor hours: NS = H - L
Non-labor income: π = 30
Lumpsum tax: T = 10
Hourly wage: w = 4
Suppose the hourly wage changes to w = 3. What is the substitution effect of this change on labor supply?
A. +2.65
B. -2.65
C. +3.48
D.-3.48
E. None of the above
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