Question: Sally currently does not work, and at her current market wage she is indifferent between working and not working. Suppose here market wage increases due

Sally currently does not work, and at her current market wage she is indifferent between working and not working.

  1. Suppose here market wage increases due to external factors. What will Sally do? Illustrate with budget constraints and indifference curves.

  1. What do you think would happen to Sally's reservation wage if her non-labor income increases? Why?

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