Q2) Samantha has an annual non-labour income of $5000. Suppose she has the to available time of 4160 hours per year. Samantha's wage rate is $15 per hour, and s chooses to work 2000 hours in a year. Suppose when Samantha's wage rate increas from $15 to $18 per hour, she will work 2040 hours. At $18 per hour, if she works 22 hours per year, she would be indifferent to her original work decision before the wag increase. a) Draw a diagram to show all the given information related to Samantha's w circumstances. Calculate all the relevant income levels and label them in the gra b) Calculate Samantha's income effect, substitution effect and total effect related to wage increase. Show them in the diagram.

ENGR.ECONOMIC ANALYSIS
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Author:NEWNAN
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Chapter1: Making Economics Decisions
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Q2) Samantha has an annual non-labour income of $5000. Suppose she has the total
available time of 4160 hours per year. Samantha's wage rate is $15 per hour, and she
chooses to work 2000 hours in a year. Suppose when Samantha's wage rate increases
from $15 to $18 per hour, she will work 2040 hours. At $18 per hour, if she works 2200
hours per year, she would be indifferent to her original work decision before the wage
increase.
a) Draw a diagram to show all the given information related to Samantha's work
circumstances. Calculate all the relevant income levels and label them in the graph.
b) Calculate Samantha's income effect, substitution effect and total effect related to the
wage increase. Show them in the diagram.
Transcribed Image Text:Q2) Samantha has an annual non-labour income of $5000. Suppose she has the total available time of 4160 hours per year. Samantha's wage rate is $15 per hour, and she chooses to work 2000 hours in a year. Suppose when Samantha's wage rate increases from $15 to $18 per hour, she will work 2040 hours. At $18 per hour, if she works 2200 hours per year, she would be indifferent to her original work decision before the wage increase. a) Draw a diagram to show all the given information related to Samantha's work circumstances. Calculate all the relevant income levels and label them in the graph. b) Calculate Samantha's income effect, substitution effect and total effect related to the wage increase. Show them in the diagram.
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