Danny has 40 hours per week to allocate to work and leisure. He is currently paid an hourly wage of $20 for any hours worked. The figure below illustrates Danny's budget constraint (BCo). His preferences are reflected in the indifference curve (ICo). Consider instead the situation where his employer pays him $40 for the first 10 hours worked per week, $30 for the next 10 hours (10-20 hours) and $20 for any hours beyond 20 hours. This is shown in the blue budget constraint, BC, , in the figure below. Given Danny's preferences, which of the following statements is correct in this new situation (compared to his current situation)? BC BC IC YN Loa40 L 40 20 10 0 -h Danny is likely to work more hours. O Danny is likely to earn and consume more overall. O None of the answers in this list apply. Danny is likely to keep working the same number of hours. Danny will be worse off: he will achieve a lower level of utility. The substitution effect is the main driver of the impact on hours worked. O The income effect is the main driver of the impact on hours worked.

Danny has 40 hours per week to allocate to work and leisure. He is currently paid an hourly wage of $20 for any hours worked. The figure below illustrates Danny's budget constraint (BCo). His preferences are reflected in the indifference curve (ICo). Consider instead the situation where his employer pays him $40 for the first 10 hours worked per week, $30 for the next 10 hours (10-20 hours) and $20 for any hours beyond 20 hours. This is shown in the blue budget constraint, BC, , in the figure below. Given Danny's preferences, which of the following statements is correct in this new situation (compared to his current situation)? BC BC IC YN Loa40 L 40 20 10 0 -h Danny is likely to work more hours. O Danny is likely to earn and consume more overall. O None of the answers in this list apply. Danny is likely to keep working the same number of hours. Danny will be worse off: he will achieve a lower level of utility. The substitution effect is the main driver of the impact on hours worked. O The income effect is the main driver of the impact on hours worked.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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