Q1) Deborah has 80 hours per week available for work and leisure. Her current rate is $25 per hour. Deborah has $400 of rental income every week. a) Construct a proper diagram to describe Deborah's choice of working 40 hours per week. Calculate Deborah's maximum possible income and optimal income, and show them in the diagram. b) Suppose Deborah recently moved into her boyfriend's place. She shares the household expenses and is "taxed" 50% of her wage income. Draw another diagram to compare Deborah's choice in Part a) and a new labor supply decision of working 50 hours per week due to the "tax". Clearly label out the income effect, substitution effect and total effect in the diagram.

Q1) Deborah has 80 hours per week available for work and leisure. Her current rate is $25 per hour. Deborah has $400 of rental income every week. a) Construct a proper diagram to describe Deborah's choice of working 40 hours per week. Calculate Deborah's maximum possible income and optimal income, and show them in the diagram. b) Suppose Deborah recently moved into her boyfriend's place. She shares the household expenses and is "taxed" 50% of her wage income. Draw another diagram to compare Deborah's choice in Part a) and a new labor supply decision of working 50 hours per week due to the "tax". Clearly label out the income effect, substitution effect and total effect in the diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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