Sonia works 30 hours per week at a gift shop. her hourly wage is increased from

Question

Sonia works 30 hours per week at a gift shop. her hourly wage is increased from $10 to $12 and she is offered the option of increasing her total work hours. Given that leisure is a normal good for Sonia, she will choose to increase the number of hours she works only if:
A. the income effect of the wage change outweighs the substitution effect of the wage change.
B. the substitution effect of the wage change outweighs the income effect of the wage change.
C. her labor supply curve is downward-sloping
D. she views $12 an hour as an efficient wage

Explanation / Answer

Assume 5 day work week with a total of 120 hours per work week. If she works 30 hours per week, she has 90 hours of leisure time. Her total income is 30 hours times $10.00 or a total of $3000. If her wage goes up top $12, her total income goes up to 12 times 30 = 3600. Since with a higher income now, she might value her leisurely hours more. So, in order for Sonia to increase her total working hours, the susbstitution effect ( an increase in higher wage prompts her to work more since the opportunity cost lost for not working ( i.e. hourly cost of leisure) has just gone up. If the substitution effect of the wage change is > the income/total wealth effect, Sonia will choose to work extra hours. Answer is B.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.