(10) A person earns a wage $10 per hour and has 100 hours per week to allocate between leisure and work. At the $10 wage, the person chooses to consume 65 hours of leisure per week.

a.  Draw the labor-leisure graph showing the situation described above. Make sure to label all intercepts, axis, and relevant slopes in your graph.

b.The wage increases to $15 per hour.  Assume the substitution effect exceeds the income effect.  Show on your graph whether the person works more or less with the wage increase.

c.You receive a $50 weekly cash allowance from a college scholarship fund.  Show the effect of the scholarship on your budget constraint. Do you work more, less, or the same? Explain.

Answer rating: 100% (QA)

Answer a b Wage Increase With the wage increase to 15 per hour the budget constraint line will become steeper The new slope will be 15hour This steepe... View the full answer