Question

Question 2: in the figure below you can find two budget constraints and two indifference curves for Dan. Initially, Dan's hourly wage is $10, and he chooses bundle A on IC1, and enjoys 13 hours of leisure. When the wage increases to $12, he prefers bundle B on IC2, and enjoys 11 hours of leisure In a manner similar to Figure 2.7 on page 27 of the textbook, draw the income effect and substitution effect for leisure when the wage increases from $10 to $12. To do so complete the following steps: Draw the "fake" budget constraint that is parallel to the initial budget line and tangent to indifference curve IC2 Mark with a point the bundle (label it C) that Dan would choose on IC2 if he was faced with the "fake" budget constraint. Report on the horizontal axis the amount of leisure he enjoys with bundle C Draw an arrow that precisely indicates the extent and the direction of the income effect. Draw an arrow that precisely indicates the extent and the direction of the substitution effect. 2.a) 2.b) 2.c) 2.d) 2.e) Y (per day) 288 240 IC2 L (per day) 11 13 24

Answer 1

Per da 288 ro Ic 嶋 し(felda 12 3 «Hyeよ

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