Assume that a person earns $10 per hour and her non-labor income increases from $100 to $200. She also has 110 hours a week to decide either to work or leisure. a. Draw a budget constraint of this person. b. Draw an indifference curve to show the income and substitution effect of change in non-labor income. HINT: you can draw two separate graphs to show the effect of substitution and income effects.
Assume that a person earns $10 per hour and her non-labor income increases from $100 to $200. She also has 110 hours a week to decide either to work or leisure. a. Draw a budget constraint of this person. b. Draw an indifference curve to show the income and substitution effect of change in non-labor income. HINT: you can draw two separate graphs to show the effect of substitution and income effects.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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Assume that a person earns $10 per hour and her non-labor income increases from $100 to
$200. She also has 110 hours a week to decide either to work or leisure.
a. Draw a budget constraint of this person.
b. Draw an indifference curve to show the income and substitution effect of change in
non-labor income. HINT: you can draw two separate graphs to show the effect of
substitution and income effects.
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