Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (6th Edition)
6th Edition
ISBN: 9780134304755
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 17, Problem 17.2.3PA
To determine
Income effect and substitution effect.
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The figure given below shows a backward-bending labor supply curve for an individual. Along which part of the
labor supply curve in the figure below does the income effect of a wage change outweigh the substitution effect?
Figure 12.1
Wage
b
Quantity
of labor
Between points a and b
Between points a and c
Between points b and c
Between points c and d
Between points b and d
О
О
Say whether you agree or disagree with this statement and explain your reason:
“If the income effect of a wage change dominates the substitution effect for a given household, and the household works longer hours following a wage change, wages must have risen.”
Q10
Chapter 17 Solutions
Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (6th Edition)
Ch. 17 - Prob. 17.1.1RQCh. 17 - Prob. 17.1.2RQCh. 17 - Prob. 17.1.3RQCh. 17 - Prob. 17.1.4RQCh. 17 - Prob. 17.1.5PACh. 17 - Prob. 17.1.6PACh. 17 - Prob. 17.1.7PACh. 17 - Prob. 17.1.8PACh. 17 - Prob. 17.1.9PACh. 17 - Prob. 17.2.1RQ
Ch. 17 - Prob. 17.2.2RQCh. 17 - Prob. 17.2.3PACh. 17 - Prob. 17.2.4PACh. 17 - Prob. 17.2.5PACh. 17 - Prob. 17.2.6PACh. 17 - Prob. 17.2.7PACh. 17 - Prob. 17.2.8PACh. 17 - Prob. 17.3.1RQCh. 17 - Prob. 17.3.2RQCh. 17 - Prob. 17.3.3PACh. 17 - Prob. 17.3.4PACh. 17 - Prob. 17.3.5PACh. 17 - Prob. 17.3.6PACh. 17 - Prob. 17.3.7PACh. 17 - Prob. 17.3.8PACh. 17 - Prob. 17.4.1RQCh. 17 - Prob. 17.4.2RQCh. 17 - Prob. 17.4.3RQCh. 17 - Prob. 17.4.4RQCh. 17 - Prob. 17.4.5PACh. 17 - Prob. 17.4.6PACh. 17 - Prob. 17.4.7PACh. 17 - Prob. 17.4.8PACh. 17 - Prob. 17.4.9PACh. 17 - Prob. 17.4.10PACh. 17 - Prob. 17.4.11PACh. 17 - Prob. 17.4.12PACh. 17 - Prob. 17.4.13PACh. 17 - Prob. 17.4.14PACh. 17 - Prob. 17.4.15PACh. 17 - Prob. 17.4.16PACh. 17 - Prob. 17.4.17PACh. 17 - Prob. 17.4.18PACh. 17 - Prob. 17.4.19PACh. 17 - Prob. 17.4.20PACh. 17 - Prob. 17.4.21PACh. 17 - Prob. 17.5.1RQCh. 17 - Prob. 17.5.2RQCh. 17 - Prob. 17.5.3RQCh. 17 - Prob. 17.5.4PACh. 17 - Prob. 17.5.5PACh. 17 - Prob. 17.5.6PACh. 17 - Prob. 17.5.7PACh. 17 - Prob. 17.5.8PACh. 17 - Prob. 17.6.1RQCh. 17 - Prob. 17.6.2RQCh. 17 - Prob. 17.6.3RQCh. 17 - Prob. 17.6.4PACh. 17 - Prob. 17.6.5PACh. 17 - Prob. 17.6.6PACh. 17 - The total amount of oil in the earth is not...Ch. 17 - Prob. 17.6.8PA
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- Sam has the following labor supply curve: The income effect of a higher wage outweighs the substitution effect when wages are _____ . The income effect is the phenomenon that workers choose to work _____ hours when they are given a raise, because _____ .arrow_forwardWhat happens to hours of work when the wage rate falls? Decompose the change in hours of work into income and substitution effects.arrow_forwardExplain in detail Discuss the possible substitution effect and the income effect of an increase in income on leisure time.arrow_forward
- Use a diagram to thoroughly explain the backward bending labor supply curve and explain what income and substitution effects are.arrow_forwardIllustrate graphically and explain the income and substitution effects of a wage decrease on hours of labor supply for the case in which the individual's labor supply curve is backward bending. Graphically derive the individual's labor supply curve.arrow_forwardCindy gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 168 hours. Her utility function is U ( C, L) = C x L. This functional form implies that Cindy’s marginal rate of substitution is C/L. Cindy receives $630 each week from her great-grandmother—regardless of how much Cindy works. What is Cindy’s reservation wage?arrow_forward
- When deriving labour supply, we assumed that the substitution effect dominated the income effect. What impact would there be on labour supply if this was not the case? Briefly investigate how such a change could theoretically affect the imposition of a minimum wage. (Your answer is likely to benefit if it is supported by a diagram.)arrow_forwardBassie, who can currently work as many hours as she wants at a wage of w, chooses to work ten hours a day. Her boss decide to limit the number of hours that she can work to eight hours per day. Show how her budget constraint and choice of hours changes. Is she unambiguously worse off as a result of this change? why?arrow_forwardPatrick has the following labour supply curve: WAGE RATE (Dollars per hour) W3 W2 W1 Labour Supply HOURS WORKED The substitution effect of a higher wage outweighs the income effect when wages are The substitution effect is the phenomenon that workers choose to work raise, because hours when they are given aarrow_forward
- draw a budget line for a person who works 2000 hours a year today at 16$ per hour and expects to work 2000 hours in the future at the same wage. then show the effect on the graph if he increases his hourly wage to 50$an hourarrow_forwardAnalyze the labor supply schedules for Joshua and Scott below. Wage $5 $8 $12 $15 $18 $20 $25 At what point does the income effect begin to outweigh the substitution effect for Joshua? When the wage is higher than $ per hour. Hours Worked by Scott 5 10 20 30 40 45 50 Hours Worked by Joshua 4 0 8 15 25 35 33 30 Check Answerarrow_forwardAkua gains utility from consumption C and leisure L. The most leisure she can consume in any given week is 110 hours. Her utility function is U (C, L) = C × L. Akua receives 660 GHS each week from her great-grandmother—regardless of how much she works. a. What will be Akua’s marginal rate of substitution. b. What will be Akua’s reservation wage? (Explain in detail)arrow_forward
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