For the following three questions, assume that leisure is a normal good. a A worker has a wage of £10 an hour, and chooses to work eight hours a day. Represent this decision in a suitably labelled graph. (Assume convex preferences) The worker is taxed a lump sum of £30. Show the effect on the budget curve graphically. Would labour supply go up or down? C Return to the scenario in question 3. The worker's wage increases from £10 an hour to £12. Assuming that the substitution effect dominates the income effect, would hours worked go up or down? Show these two effects in a suitably labelled graph. (Change in hours don't need to be specific- it is the direction we care about here.)

For the following three questions, assume that leisure is a normal good. a A worker has a wage of £10 an hour, and chooses to work eight hours a day. Represent this decision in a suitably labelled graph. (Assume convex preferences) The worker is taxed a lump sum of £30. Show the effect on the budget curve graphically. Would labour supply go up or down? C Return to the scenario in question 3. The worker's wage increases from £10 an hour to £12. Assuming that the substitution effect dominates the income effect, would hours worked go up or down? Show these two effects in a suitably labelled graph. (Change in hours don't need to be specific- it is the direction we care about here.)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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