Draw a graph to show these two effects: 1. For wage decrease....If income effect > substitution effect, then hours of work rise. 2. For wage increase...If income effect > substitution effect, then hours of work fall. Give a scenario for when these two can occur.

Draw a graph to show these two effects: 1. For wage decrease....If income effect > substitution effect, then hours of work rise. 2. For wage increase...If income effect > substitution effect, then hours of work fall. Give a scenario for when these two can occur.

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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Draw a graph to show these two effects: 1. For wage decrease...If income effect > substitution effect, then hours of work
rise. 2. For wage increase...If income effect > substitution effect, then hours of work fall. Give a scenario for when these two
can occur.

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Step 1: Define income and substitution effect

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Step 2: Describe the case of wage decrease

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Step 3: Describe the case of wage increase

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PLCY 310 Problem Set 2 SSII Extra credit (5 points) Use these graphs to answer the following: weekly $'s consumption wage 25 20 wage- 25 wage- 20 5 10 15 20 25 30 35 40 45 50 55 60 week hrs of leisure B labor supply curve SE WE 5 10 15 20 25 30 35 40 45 50 55 60 week hrs of labor a) Analyze what is happening on the first graph (use slide 9 Chapter 9 as guide), go over the price change, the income and substitution effects, and the total effect. (3 points) b) Explain the bottom graph, what does it tell us? (1 point) c) Draw a leisure demand curve with wages on the y-axis and weekly leisure hours on the x-axis using the information in this graph. (1 point)