Question 1

What information is embodied in:

a) an indifference curve

b) the budget line in the work-leisure model?

Why are indifference curves

a) downwardsloping

b) convex to the origin?

Draw an indifference map and budget line and locate a worker's optimal position.

Question 2

Indicate in each of the following instances whether the specified circumstances will cause a worker to want to work more or fewer hours:

a) The wage rate increases and the substitution effect is greater than the income effect.

b) The wage rate decreases and the income effect is greater than the substitution effect.

c) The wage rate decreases and the substitution effect is greater than the income effect.

d) The wage rate increases and the income effect is greater than the substitution effect.