3. 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, Mehdi reallocates his time between work and leisure, as shown in the diagram below. Composite good 4 42 43 Time Constraint 24 Leisure (0-24)/ Work (24-0) Given this information, which of the following conclusions can we reach? (a) The substitution and income effects both cause Mehdi to take more leisure time, meaning leisure is a normal good. (b) The substitution effect and income effects both cause Mehdi to take less leisure time, meaning leisure is a normal good. (c) 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. (d) 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. (e) The substitution effect causes Mehdi to take less leisure time, while the income effect causes Mehdi to take more leisure time, meaning leisure is an inferior good.
3. 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, Mehdi reallocates his time between work and leisure, as shown in the diagram below. Composite good 4 42 43 Time Constraint 24 Leisure (0-24)/ Work (24-0) Given this information, which of the following conclusions can we reach? (a) The substitution and income effects both cause Mehdi to take more leisure time, meaning leisure is a normal good. (b) The substitution effect and income effects both cause Mehdi to take less leisure time, meaning leisure is a normal good. (c) 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. (d) 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. (e) The substitution effect causes Mehdi to take less leisure time, while the income effect causes Mehdi to take more leisure time, meaning leisure is an inferior good.
Chapter6: Demand Relationships Among Goods
Section: Chapter Questions
Problem 6.3P
Related questions
Question
Transcribed Image Text:3.
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, Mehdi reallocates his time between work and leisure, as
shown in the diagram below.
Composite
good
4
42 43
Time Constraint
24
Leisure (0-24)/
Work (24-0)
Given this information, which of the following conclusions can we reach?
(a) The substitution and income effects both cause Mehdi to take more leisure time,
meaning leisure is a normal good.
(b) The substitution effect and income effects both cause Mehdi to take less leisure
time, meaning leisure is a normal good.
(c) 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.
(d) 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.
(e) The substitution effect causes Mehdi to take less leisure time, while the income
effect causes Mehdi to take more leisure time, meaning leisure is an inferior good.
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