%3Cp%3EThink%20about%20individual\'s%20labor%20supply%20decisions.%20Imagine%20t
ID: 2506815 • Letter: #
Question
%3Cp%3EThink%20about%20individual's%20labor%20supply%20decisions.%20Imagine%20that%0Athere%20is%20a%20decrease%20in%20the%20wage%20for%20example%20due%20to%20an%20increase%20in%0Ataxes.%20Provide%20BOTH%20an%20intutitive%20written%20explanation%20and%20a%0Agraphical%20explanation.%20(Think%20of%20wage%20as%20the%20price%20of%20leisure%2C%20and%0Ahours%20worked%20as%2024%20minus%20lesiure.%20individuals%20make%20a%20choice%20between%0Aconsumption%20and%20lesiure.)%3C%2Fp%3E%0A%3Cp%3E%3Cbr%20%2F%3E%3C%2Fp%3E%0A%3Cp%3E1.%20What%20is%20the%20subsitution%20effect%20from%20a%20decrease%20in%20wage%3F%0A(Hint%3A%20draw%20a%20figure%20with%20consumption%20and%20lesiure%20on%20the%20two%20axes.%0AThe%20wage%20is%20the%20price%20of%20leisure%20and%20consumption%20has%20price%20p.)%3C%2Fp%3E%0A%3Cp%3E%3Cbr%20%2F%3E%3C%2Fp%3E%0A%3Cp%3E2.%20What%20is%20the%20income%20effect%20from%20a%20decrease%20in%20the%20wage%3F%3C%2Fp%3E%0A%3Cp%3E%3Cbr%20%2F%3E%3C%2Fp%3E%0A%3Cp%3E3.%20What%20is%20the%20total%20effect%20of%20a%20decrease%20in%20the%20wage%3F%20Can%20we%0Atheoretically%20say%20whether%20people%20will%20work%20more%20or%20less%20due%20to%20the%0Adecrease%20in%20the%20wage%3F%3C%2Fp%3E%0A%3Cp%3E%3Cbr%20%2F%3E%3C%2Fp%3E%0A%3Cp%3E4.%20Explain%20why%20indivudals%20who%20spend%20more%20of%20their%20time%20working%0Aare%20likely%20to%20be%20less%20responsive%2C%20in%20terms%20of%20changing%20their%20hours%0Aworked%2C%20to%20a%20decrease%20in%20the%20wage.%20%3C%2Fp%3E%0AExplanation / Answer
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