Question

If Janet's labor-supply curve is upward sloping when the wage is between $8 and $12 per hour, then point   on the graph represents a possible optimum at a wage of $12 per hour. Given this optimum at a wage of $12 per hour, an optimum of point   generates a backward-sloping labor-supply curve when the wage is between $12 and $16 per hour.

Janet is awake for 100 hours per week. The following graph shows Janet's budget constraints at wages of $8 per hour, $12 per hour, and $16 per hour. Assume that point A indicates the optimum consumption bundle when Janet earns 58 per hour. 2000 1800 1600 W=$16 1400 1200 W=$12 Consumption (Dollars) 1000 ----+m 800 W-S8 B 600 400 200 0 0 10 20 30 80 90 100 40 50 60 70 Leisure (Hours) If Janet's labor-supply curve is upward sloping when the wage is between $8 and $12 per hour, then point possible optimum at a wage of $12 per hour. Given this optimum at a wage of $12 per hour, an optimum of point labor-supply curve when the wage is between $12 and $15 per hour. on the graph represents a generates a backward-sloping

Answer 1

The correct answers are-

If Janet's labor-supply curve is upward sloping when the wage is between $8 and $12 per hour, then point B on the graph represents a possible optimum at a wage of $12 per hour. Given this optimum at a wage of $12 per hour, an optimum of point D generates a backward-sloping labor-supply curve when the wage is between $12 and $16 per hour.

Explanation-

It is given that Janet's labor supply curve is upward sloping (an upward sloping labor supply curve means that as wage increases, a person will spend more time working and less time in leisure) and that A is the optimum consumption bundle at wage of 8 per hour. If Janet earns 12, which is more than 8, her leisure hours would reduce as her supply curve is upward sloping. This means that the optimum bindle on $12 curve must be on the left of point A, and point B is that point.

For the second part- if Janet's labor supply curve has to be downward sloping (an downward sloping labor supply curve means that as wage increases, a person will spend less time working and more time in leisure), it means that the optimum bundle for $16 must be on the right of point B. On $16 curve, point D is on the right of B.