Business, 12.12.2019 00:31 alexanderickh1

Leandro has 16 hours per day that he can allocate to work or leisure. his job pays a wage rate of $20. leandro decides to consume 8 hours of leisure. his indifference curves have the usual shape: they slope downward, they do not cross, and they have the characteristic convex shape. (15 points)

draw leandro’s budget constraint for a typical day. then illustrate the indifference curve at his optimal choice.

now leandro’s wage rate falls to $10.

draw leandro’s new budget line.

suppose that leandro now works only 4 hours as a result of his reduced wage rate. illustrate the indifference curve at his new optimal choice.

leandro’s decision to work less as the wage rate falls is the result of a substitution effect and an income effect. which effect is stronger? explain your reasoning.

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