Juanita has 80 hours per week to devote to working or to leisure. She is paid an hourly wage and can work at her job as many hours a week as she likes. The following graph illustrates Juanita's weekly income-leisure tradeoff. The three lines labeled BC1, BC2, and BC3 illustrate her time allocation budget at three different wages; points A, B, and C show her optimal time allocation choices along each of these constraints. ATTACHED Image Q11a For each of the points listed, use the preceding graph to complete the following table by indicating the hourly wage at each point and how many hours per week Juanita will spend during leisure activities versus working. Wage Leisure Labor Point (Dollars per hour) (Hours) (Hours) A B C Based on the data you entered in the preceding table, use the orange curve (square symbols) to plot Juanita's labor supply curve on the following graph, showing how much labor she supplies each week at each of the three wages. ATTACHED images Q11b Suppose that Juanita's initial budget line was BC2 and that it then changed to BC3; therefore, Juanita's optimal time allocation choice shifted from B to C. As a result of this change, Juanita's opportunity cost of leisure (decreased or increased), and she chose to consume (less or more) leisure. Consequently, in this region, the (substitution or income) effect dominates the (income or substitution) effect. The corresponding portion of Juanita's labor supply curve is (upward sloping jor backward sloping).

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter13: Measuring The Economy's Performance

Section13.1: National Income Accounting

Problem 5R

See similar textbooks

The backward-sloping labor supply curve

Juanita has 80 hours per week to devote to working or to leisure. She is paid an hourly wage and can work at her job as many hours a week as she likes.

The following graph illustrates Juanita's weekly income-leisure tradeoff. The three lines labeled BC1, BC2, and BC3 illustrate her time allocation budget at three different wages; points A, B, and C show her optimal time allocation choices along each of these constraints.

ATTACHED Image Q11a

For each of the points listed, use the preceding graph to complete the following table by indicating the hourly wage at each point and how many hours per week Juanita will spend during leisure activities versus working.

	Wage	Leisure	Labor
Point	(Dollars per hour)	(Hours)	(Hours)
A
B
C

Based on the data you entered in the preceding table, use the orange curve (square symbols) to plot Juanita's labor supply curve on the following graph, showing how much labor she supplies each week at each of the three wages.

ATTACHED images Q11b

Suppose that Juanita's initial budget line was BC2 and that it then changed to BC3; therefore, Juanita's optimal time allocation choice shifted from B to C. As a result of this change, Juanita's opportunity cost of leisure (decreased or increased), and she chose to consume (less or more) leisure. Consequently, in this region, the (substitution or income) effect dominates the (income or substitution) effect. The corresponding portion of Juanita's labor supply curve is (upward sloping jor backward sloping).

24
22
20
Labor Supply
18
16
14
12
10
0 5 10 15 20 25 30 35 40 45 50 55 60
LABOR (Hours)
WAGE (Dollars per hour)

BC,
1200
BC2
720
BC,
400
25 30 35
LEISURE (Hours)
INCOME (Dollars)
ut--

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