Sarah's weekly wage rate was reduced due to the company she works for cutting staff wage rates. Sarah decided to reduce her weekly working hours. Assume that there are 120 weekly hours available between work and leisure. Draw a diagram to show Sarah's original and new optimal points and the impact on her welfare. After that redraw your diagram and split the total welfare impact into substitution and income effects.

Sarah's weekly wage rate was reduced due to the company she works for cutting staff wage rates. Sarah decided to reduce her weekly working hours. Assume that there are 120 weekly hours available between work and leisure. Draw a diagram to show Sarah's original and new optimal points and the impact on her welfare. After that redraw your diagram and split the total welfare impact into substitution and income effects.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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