Consider a model where a consumer, Mehdi, is deciding how to allocate their 24 hours each day between work and leisure. The take-home wage they initially receive is w = 15, but following arise in income tax, their take-home pay falls to w = 12. Following this change in the wage rate, the budget constraint changes from the blue line to the red line. Mehdi reallocates his time betweenwork and leisure, as shown in the diagram below:Compositegood0L₁ L2 L3Time Constraint24Leisure (0-24)/Work (24-0)Given this information, which of the following conclusions can we reach?The substitution and income effects both cause Mehdi to take more leisure time, meaning leisure is an inferior good.The substitution effect causes Mehdi to take more leisure time, while the income effect causes Mehdi to take less leisure time, meaning leisure is a normal good.The substitution effect causes Mehdi to take more leisure time, while the income effect causes Mehdi to take less leisure time, meaning leisure is an inferior good.The substitution effect and income effects both cause Mehdi to take less leisure time, meaning leisure is a normal good.None of the above.

The normal good refers to the good which is positively related to the income level. The demand for…

Consider a model where a consumer, Mehdi, is deciding how to allocate their 24 hours each day between work and leisure. The take-home wage they initially receive is w = 15, but following a rise in income tax, their take-home pay falls to w = 12. Following this change in the wage rate, the budget constraint changes from the blue line to the red line. Mehdi reallocates his time between work and leisure, as shown in the diagram below: Composite good 0 41 42 43 Time Constraint 24 Leisure (0-24)/ Work (24-0) Given this information, which of the following conclusions can we reach? O The substitution and income effects both cause Mehdi to take more leisure time, meaning leisure is an inferior good. O The substitution effect causes Mehdi to take more leisure time, while the income effect causes Mehdi to take less leisure time, meaning leisure is a normal good. O The substitution effect causes Mehdi to take more leisure time, while the income effect causes Mehdi to take less leisure time, meaning leisure is an inferior good.

Consider a model where a consumer, Mehdi, is deciding how to allocate their 24 hours each day between work and leisure. The take-home wage they initially receive is w = 15, but following a rise in income tax, their take-home pay falls to w = 12. Following this change in the wage rate, the budget constraint changes from the blue line to the red line. Mehdi reallocates his time between work and leisure, as shown in the diagram below: Composite good 0 41 42 43 Time Constraint 24 Leisure (0-24)/ Work (24-0) Given this information, which of the following conclusions can we reach? O The substitution and income effects both cause Mehdi to take more leisure time, meaning leisure is an inferior good. O The substitution effect causes Mehdi to take more leisure time, while the income effect causes Mehdi to take less leisure time, meaning leisure is a normal good. O The substitution effect causes Mehdi to take more leisure time, while the income effect causes Mehdi to take less leisure time, meaning leisure is an inferior good.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter16: Labor Markets

Section: Chapter Questions

Problem 16.2P

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