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.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 1SQP

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