Question

2. Steve Slacker is age 25, has an MBA degree, but is not working. Instead he is living at a major ski area, using the $2,000 per week he gets from his wealthy family. The family, however, seeing that Steve is becoming a permanent slacker, ends his weekly payment. As a result, Steve chooses to take a job that pays $1,000 a week for 40 hours or work. a) Construct a single income-leisure choice graph to show Steve's situation before and after his parent's decision. b) Briefly summarize the outcome as to hours of work, total weekly income, and Steve's total utility.

Answer 1

In normal circumstances es for for a a rational rational labot labourer, the Supply curve of labour is a positively sloped curve Showing increasing supply of labour with increased wages. The supply of labour curve beads backward after a point when the labourer starts Preferring more leisure to higher wages, bet but in the aforesaid case of steve, he Prefers more leisure when he is comfortably inheriting a sum of $2000 per week from parent's Property. however when the source of income is restricted he is left with no choice but to work. So he takes up a job for $ 1000 income per week by supplying to labour hours. The leisure income choice curve will be as under $2000 AL & loode income Leisure nohrs Hours worked

Thus, the income - leisure choice corve will be a down ward sloping curve. Steve is ready to work less when his income is more & vice-versa