Business, 25.11.2020 14:30 vicbar1024

An economist is working for a Wall Street firm 12 hours a day and he makes $400 per hour. He sleeps 6 hours per day and he can spend the rest hours in whatever he wants. He receives an increase in his hourly wage of 25% and he decides to cut back the hours he works to 8 per day to dedicate more time to his family. Required:
a. Show in a graph his initial budget constraint (BC) and his combination of hours at home and market goods before the raise in wage.
b. Show in a graph how the BC changes with the change in hourly wage.
c. Show in a graph his new combination of hours at home and market goods after the raise in wage.
d. Explain with words the difference in the substitution effect and in the income effect in this case. Which effect was larger?

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An economist is working for a Wall Street firm 12 hours a day and he makes $400 per hour. He sleeps...

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